Glossary of Terms
BENEFICIARY
The person or other entity that receives the payout from an insurance policy upon the death of the insured.
ILLUSTRATION
A proposal demonstrating a policy's future performance (cash value, required premiums, death benefit). May have 'guaranteed' and 'non-guaranteed' values.
RATING CLASSES
Insurers assign a health rating to their clients; better ratings mean lower premiums because the insurer believes your good health indicates a lower likelihood of having to pay the death benefit on your policy.
SECOND-TO-DIE
A type of insurance policy that insures two lives, only paying the death benefit upon the demise of the second individual insured.
CONTESTABILITY PERIOD
A period of time, usually two years, during which the insurance company can reject a claim due to any misstatements in the insurance application. Additionally, acts of suicide are usually contestable and will result in a claim not being paid during the contestability period. After this period expires the policy is 'incontestable'.
PREMIUM
The amount of funding required to carry a policy. Premiums can vary widely depending on the product type and insurance carrier selected, as well as the health of the insured.
CONVERTIBLE TERM INSURANCE
A term insurance policy that offers the option of 'converting' the policy to a permanent policy if the insured provides evidence of continued good health.
TERM INSURANCE
Insurance which provides coverage for a predetermined amount of time, or a 'term'. Generally is less expensive, but does not accumulate cash and is not permanent coverage.
UNIVERSAL LIFE INSURANCE
Permanent insurance which can accumulate cash at various rates of return inside the policy (typically tied to market performance).
LAPSE
The event that occurs when minimum premiums are not paid; the insurance coverage will no longer be in force.
LONG TERM CARE INSURANCE (LTC)
Insurance designed to cover the costs of care in a nursing home or assisted living facility, or, alternatively, the costs of providing similar services at home.
SURRENDER CHARGE
The fee an insurer assesses whenever a policyholder cancels their permanent policy and takes the accumulated cash from their policy. Sometimes, a surrender charge will only be assessed in the first few years after a policy is put in force.
LEVEL PREMIUM
A payment structure under which the same premium is paid every year for the insurance policy.
CASH VALUE (CV)
The amount of money available in a policy if the owner of the policy surrenders it. May be subject to a surrender charge, if the 'surrender period' is still in effect.
DEATH BENEFIT
The amount of money paid to the beneficiaries of a policy, upon the demise of the insured individual or individuals. May also be referred to as the 'face amount' of the policy.
COST OF INSURANCE (COI)
The amount of the premium that goes to keeping the insurance in force. In term insurance, the COI and the premium are nearly equal; in permanent policies, however, additional premium may be paid and is accumulated as cash value in the policy.