Life insurance has a vocabulary all its own. Some insurance terms might sound familiar, but have a different meaning when used in the life insurance world. The following glossary provides insurance terms and life insurance definitions to help you speak the “language of life.”
There are basically two types of life insurance, Universal Life and Term Life.
This is the simplest form of life and the most popular. It is intended to provide large amount insurance for a fixed period of time, but for those on a budget. Payments are fixed for the term of the policy which can last, 5, 10, 20, or 30 years.
Universal Life Insurance lasts for the duration of your life and has a cash value. The premium payments are above the cost of the insurance and the extra payment amount is credited towards the cash value in addition to interest paid. The amount of interest credit by the insurer is often tied to a financial index, so it is possible to see gains or losses of the overall cash value depending on how the indexes perform. The potential benefit of Universal Life is as a stable investment vehicle.
The beneficiary of your insurance policy is the person designated by you to receive the policy benefits upon your death. You may designate that the benefits from your policy be allocated to multiple beneficiaries. And you may change your beneficiary designations at any time.
Coverage Amount / Face Amount
The initial value of the policy to be paid to the insured’s beneficiary or beneficiaries in the event of the death of the insured while the policy is in force. This value does not include adjustments for outstanding policy loans, withdrawals, dividends, paid-up additions or late/outstanding premium payments.
Health & Lifestyle Profile
The premiums that insurance companies charge for life insurance are also based in large part on the overall health and lifestyle profile of the proposed insured. Typically, individuals in good health who do not use any kind of tobacco products or engage in any hazardous activities will be able to obtain less expensive coverage than individuals who are in poor health or who use tobacco or who engage in hazardous activities. Different insurance companies use different criteria in determining the health status and lifestyle of the proposed insured.
Date of Birth
The premiums that insurance companies charge for life insurance are based in large part on the age of the proposed insured. Some companies use the attained age of the insured in this calculation, while other companies use the nearest age of the insured.
An individual who is currently covered under an existing life insurance policy.
Length of Coverage
Different term life insurance policies have different durations.
10, 15, 20, and 30-year term life insurance policies are very common. A 10-year level term policy will have an initial 10-year period in which premiums are level.
This is a payment to a life insurance company in exchange for a life insurance policy. The payment typically does not change on term life for the length of the policy.
The frequency in which premiums are paid. Typically, the total annual premium is slightly higher when payments are spread out over the course of the year as opposed to being paid all at once. For example, a policy with a $200 annual premium may also offer a $101 semiannual premium ($202 total annual cost), a $52 quarterly premium ($208 annual cost) and an $18 monthly bank draft premium ($216 annual cost).
An individual who is applying for coverage under a life insurance policy.(See also: Insured).
(See: Health & Lifestyle Profile, above).
The gender (male or female) of the insured or proposed insured.
Underwriting guidelines are the health and lifestyle criteria for the proposed insured that insurance companies use to determine the appropriate underwriting classification upon which to base the premiums for the coverage. These criteria typically include age, gender, tobacco use, height/weight build, family history of heart disease or cancer, cholesterol levels, blood pressure levels, specific health conditions, driving record, hazardous occupation or activities, military service, aviation, foreign travel or residency, U.S. citizenship and felony criminal activity. It is important that all of these underwriting guidelines are taken into consideration when evaluating any premiums quoted for life insurance coverage.
State of Residence
The state in which the insured or proposed insured resides. It is not unusual for a given insurance company to be licensed to conduct business in some states and not in others depending on their licensing. If an insurance company is not licensed to do business in a particular state, the company may not offer any of its products in that state. If an insurance company is licensed to do business in a particular state, each of the company’s products must be individually approved for sale in that state. It is not unusual for a given insurance company to have products that are approved for sale in one state and not approved for sale in others.
About the author
Christina Costa, a freelance insurance writer, recommends Equotegrabber – where you can get free insurance quotes online in seconds! Visit Equotegrabber.com <a>