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Insurance GlossaryAccidental Death BenefitAn extra benefit which generally equals the face of the contract, payable in addition to other benefits in the event of death as the result of an accident. Also referred to as Double Indemnity. Adjustable Life A form of life insurance which allows changes on the policy face amount, the amount of premium, period of protection, and the length of the premium payment period. Automatic Premium Loan A provision in a Life policy authorizing the insurer to use the loan value to pay any premiums still due at the end of the grace period. Backdating A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age at issue lower than it actually was in order to get a lower premium. State laws often limit to six months the time to which policies can be backdated. Beneficiary The person(s) named in a life insurance policy to receive the death benefit when the insured person dies. People often name a secondary, or contingent, beneficiary in case they outlive the first beneficiary. Burial Insurance The most common type of permanent life insurance, with fixed premiums, a fixed guaranteed rate of return, and guaranteed cash values. The proceeds usually cover burial, funeral, and other final expenses. Premiums must generally be paid as long as the policy is in force. Cash (Surrender) Value The amount that is available in cash for loans. You may also be able to cancel, or surrender, the policy and receive the cash value as a lump sum. Contestable Clause A provision in an insurance policy setting forth the conditions under which or the period of time during which the insurer may contest or void the policy. After that time has lapsed, normally two years, the policy cannot be contested. Death Benefit The amount paid to a beneficiary upon the death of an insured person. Decreasing Term A form of Life Insurance that provides a death benefit which declines throughout the term of the contract, reaching zero at the end of the term. Dividend A return of part of the premium based on the insurance company’s investments and expenses. Face Amount The amount stated on the face of the policy that will be paid by the insurance company at the insured person’s death. Final Expense Insurance See Burial Insurance. Free Look A period of time (usually 10, 20 or 30 days) during which a policyholder may examine a newly issued individual policy of life or health insurance, and surrender it in exchange for a full refund of premium if not satisfied for any reason. Graded Death Benefit A provision in Life Insurance contracts for death benefits that, in the early years of the contract, are less than the face amount of the policy but that increase with the passage of time. Commonly found in policies issued on people whose health requires different underwriting guidelines. Guaranteed Insurability An option in Life and Health Insurance contracts that permits the insured to buy additional prescribed amounts of insurance at prescribed future time intervals without evidence of insurability. Guaranteed Renewable A contract that the insured has the right to continue in force by the timely payment of premiums for a substantial period of time as set forth in the contract. During that period of time, the insurer has no right to make any change in any provision of the contract other than a change in the premium rate for all insureds in the same class. Contrast with Noncancellable, from which Guaranteed Renewable should be distinguished. Incontestable Clause A clause in a policy providing that after a policy has been in effect for a given length of time (two or three years), the insurer shall not be able to contest the statements contained in the application. A Health Insurance provision also states that after that time no claim shall be denied or reduced on the grounds that a condition not excluded by name at the time of issue existed prior to the effective date. In Life policies, if an insured lied as to the condition of his health at the time the policy was taken out, that lie could not be used to contest payment under the policy if death occurred after the time limit stated in the incontestable clause. Insurability Acceptability of an applicant for insurance. Insured The person on whose life the policy is issued. Limited Payment Life A Life Insurance contract providing protection for the whole of life with premiums paid for an indicated number of years. See also Life Paid Up At Age. Loan A loan made by a life insurance company from its general funds to a policy owner on the security of the cash value of a policy. Loan Value A term which refers to the amount of money an insured can borrow using the cash value of his Life Insurance policy as security. Lump Sum A method of settlement whereby the beneficiary receives the entire proceeds of a policy at once rather than in installments. Medical Information Bureau (MIB) A data pool service that stores coded information on the health histories of persons who have applied for insurance from subscribing companies in the past. Most Life and Health insurers subscribe to this bureau to get more complete underwriting information. Nonforfeiture Values Those values in a Life Insurance policy that by law the policy owner cannot forfeit even if he ceases to pay the premiums. These benefits are the cash surrender value, the loan value, the paid-up insurance value, and the extended term insurance value. The policy owner may choose one of these nonforfeiture options, but even if he fails to do so, the one specified in the contract for such a case automatically goes into effect. Ordinary Life Policy A Whole Life policy (e.g. burial insurance) for which premiums are paid continuously as long as the insured lives. Same as Straight Life Policy. See also Whole Life Insurance. Ownership All rights, benefits and privileges under life insurance policies are controlled by their owners. Policy owners may or may not be the insureds. Ownership may be assigned or transferred by written request of the current owner. Paid-up Insurance Insurance that will remain in force with no need to pay additional premiums. Per Capita Literally "by heads." Distribution among survivors by persons on a share-and-share-alike basis. The term is often used in beneficiary designations. Contrast with Per Stirpes. Per Stirpes Literally "by branches." Distribution of property between or among two or more beneficiaries with the provision that if one dies before the insured, his heirs shall have his full share distributed among them. Contrast with Per Capita. Permanent Life Insurance Insurance that covers the entire life of the insured person, as long as the premiums are paid. This type of insurance also builds up a cash value. Policyowner The person who owns a life insurance policy. While this is usually the insured person, it may also be a relative of the insured, a partnership or a corporation. Premium Payments to the insurance company to buy a policy and to keep it in force. Rated (Up) Coverages issued at a higher rate than standard because of impairment of the insured. Usually used as an adjective in such expressions as "rated risk," "rated policy," and "rated up." Renewable Term Term Insurance that may be renewed for another term without evidence of insurability. Settlement Options The various methods for the payment of the proceeds or values of a Life Insurance policy that may be selected in lieu of a lump sum. Surrender Canceling the policy before the death of the insured person. Term Life Insurance Life insurance that covers the insured person for a specific period of time and pays a death benefit only if the insured dies during that term. This type of insurance does not build up a cash value. Universal Life Insurance A flexible permanent life insurance policy under which the policyowner may change the death benefit from time to time and vary the amount or timing of premium payments. Variable Life Insurance A type of whole life insurance that allows the policyowner to invest premiums in stock, bond, and money market funds chosen from the insurance company’s portfolio. The cash value and death benefit of this policy is determined by the success of those investments. Waiver of Premium A provision of a Life Insurance policy which continues the coverage without further premium payments if the insured becomes totally disabled. Whole Life Insurance The most common type of permanent life insurance (e.g. burial insurance), with fixed premiums, a fixed guaranteed rate of return, and guaranteed cash values. Premiums must generally be paid as long as the policy is in force. | |||||||||||||
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