Life Insurance Terms

Like many other sectors, the life insurance industry has unique terms and jargon. Understanding these terms is vital for anyone considering life insurance or a life settlement. This glossary provides simple explanations for standard terms used within the life insurance industry, making it easier for anyone to navigate insurance policies and discussions.

Accelerated Death Benefits (ADB): 

An Accelerated Death Benefit (ADB) is a type of policy rider that allows the policyholder to receive a portion of their life insurance benefits early in case of terminal illness or permanent confinement. This benefit can be used to cover medical expenses, long-term care costs, and other financial needs.

Application

A life insurance application is a document you complete to apply for a life insurance policy. It contains personal information about the applicant, such as age, health status, lifestyle habits, and financial information.

Beneficiary

A life insurance policy beneficiary is the designated individual or entity entitled to receive the policy’s proceeds upon the insured’s death. By naming a beneficiary, you can secure financial assistance for your loved ones in the unfortunate event of your passing. 

Carrier

A life insurance carrier, also known as a life insurance company, is a financial institution that specializes in providing life insurance policies. These policies offer financial protection to individuals or their beneficiaries in the event of the insured’s death.

Cash Surrender Value

Cash surrender value (CSV) refers to the money a policyholder will receive if they cancel their life insurance policy before it reaches maturity or in the event of their death.

Contestability Period

A Contestability Period is a specific time frame when an insurance company can review and potentially deny a life insurance claim based on policyholder misrepresentation or fraud. This period typically ranges from 1-2 years after the insurance company issues the policy.

Cost Of Insurance

The cost of life insurance in a life insurance policy is the money needed monthly to keep the policy in good standing. 

Conversion Right

A conversion right in a life insurance policy refers to the option given to the policyholder to convert their existing term life insurance policy into a permanent one without undergoing medical underwriting. 

Coverage Period

The coverage period in life insurance refers to the duration during which the policyholder is protected by the insurance company. It is also known as the “policy term” or “policy duration”. This period begins when the policy is issued and ends after a certain number of years or upon the insured’s death, depending on the type of policy purchased.

Death Benefit

A life insurance policy’s death benefit or face value is the money the recipient receives upon the insured’s death.

Evidence of Insurability

Evidence of insurability (EOI) proves that an individual meets the health and lifestyle requirements to qualify for life insurance coverage. In other words, it is the evidence provided by a potential policyholder to demonstrate that they are insurable and pose an acceptable risk for the insurer.

Free Look Provision

A Free Look Provision is a feature in many life insurance policies that allows policyholders to review their coverage and decide if it meets their needs. During the free look period, which typically lasts 10 to 30 days, policyholders can cancel their policy without penalty or fees.

In Force

A life insurance policy that is ‘in force’ indicates that the contract between the policyholder and the insurance company is active. The policyholder has paid all the necessary premiums and has fulfilled all the policy requirements.

Grace Period

A life insurance grace period refers to the time an insurance company grants for a policyholder to make a missed premium payment without any penalties or cancellation of their coverage.

Insurable Interest

Insurable interest is a fundamental concept in life insurance that refers to the relationship between the policyholder and the insured person. In simple terms, it means that the policyholder must have a legal or financial stake in the life of the insured individual at the time of purchasing the policy.

Insured

An insured is the person whose death triggers the payout from the insurance company.

Lapsed Policy

A lapsed life insurance policy is a once active policy that is no longer in effect due to non-payment of premiums. When an individual stops paying their premiums, the policy will eventually lapse, meaning they will no longer have coverage, and any benefits associated with the policy will be forfeited.

Policy Illustration

A life insurance policy illustration is a detailed breakdown of the coverage and cost of a specific life insurance policy. It estimates the premiums and benefits the policyholder can expect based on their circumstances.

Policy Loan

A life insurance policy loan is a type of borrowing option that allows policyholders to borrow money against the cash value of their life insurance policies. This type of loan is only available for permanent or whole life insurance policies and not term life insurance policies.

Premium Payment

Life insurance premium payment is a regularly scheduled amount of money the policyholder pays to the insurance company in exchange for a death benefit.

Reinstatement

Reinstatement in a life insurance policy means restoring a canceled policy due to non-payment of premiums.

Rider

A rider in a life insurance policy refers to an optional provision that can be added to the basic policy. These riders improve the coverage and benefits the policy provides, catering to specific situations and needs. They are designed to offer more personalized protection.

Surrender

When a policyholder surrenders their insurance policy, they give up the right to receive a death benefit that would have been paid to their beneficiaries upon death.

Underwriting

Life insurance underwriting is a process that helps insurance companies assess the risk associated with providing life insurance coverage to an individual. It involves evaluating factors such as age, health, occupation, lifestyle choices, and medical history to determine the likelihood of an individual’s death and the insurance’s corresponding financial risks.

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