Life insurance is important no matter what age or stage of life because it offers a way to provide for your loved ones by paying them a sum of money that helps protect them from financial stress after you’re gone. It’s also an important aspect of retirement planning helping to bring peace of mind and financial security for your family.
As important life insurance can be, many people understandably find the topic to be confusing. Life insurance companies often assume consumers understand terms that they themselves use all the time as professionals but that isn’t always the case.
We believe that knowledge is power so we’re here to help explain some of these terms. By doing so you’ll not only be better able to research your life insurance options with confidence, you’ll be better equipped to make the right decisions for you and your situation as you choose insurance coverage.
Below are 30 life insurance terms to become familiar with so you can choose life insurance coverage with confidence!
Accelerated death benefit (ADB): This allows a life insurance policy owner to receive a portion of their death benefit from their insurance company ahead of their death. Policies vary but typically the policyholder must be terminally ill and with a life expectancy of two years or less and they must continue to pay the policy’s monthly payments. ADB’s don’t need to be repaid but the amount taken in advance is deducted from the face value (dollar amount) when the death benefit becomes due.
Actuaries/Actuarial: An actuary is a specially trained insurance professional who analyzes potential risks and probabilities to an insurance company by using math and statistics to come up with risk probability tables also known as actuary tables.
Beneficiary: The person named in the policy to receive the insurance proceeds at the death of the insured. Anyone can be named as a beneficiary.
Benefit rider: These are the extra benefits that a policyholder can buy to add on to a life insurance policy.
Cash surrender value: The amount of money an insurance company pays you if you voluntarily terminate a policy that has earned cash value before your death or before the policy matures.
Cash value: The portion of your policy that earns interest and may be available for you to withdraw or borrow against in case of an emergency.
Death benefit: This is the amount of money that’s paid out to beneficiaries when the insured person dies provided that the life insurance policy is “in effect” meaning payments are up to date. Is also referred to as the “face value” of your policy or the amount of life insurance coverage you purchased.
Evidence of Insurability: A statement or proof of your health, finances or job which helps the insurer decide if you are an acceptable risk for life insurance.
Exclusions: A life insurance exclusion is a situation or circumstance that prevents your beneficiaries from receiving your death benefit. Policies vary but typically it means that certain causes of death are not covered by the policy.
Face value: Also referred to as a “death benefit” it’s the amount of money that’s paid out to beneficiaries when the insured person passes away provided that the life insurance policy is “in effect” meaning payments are up to date.
Final expenses: Costs of items and services related to the death of a loved one. They can include medical bills, funeral expenses, etc.
Face amount/Face value: This is the dollar amount of money equated to the worth of your policy. Also referred to as the death benefit.
Grace period: The length of time you have after the due date to pay your life insurance premium before your insurance company cancels your policy. This varies by insurance company but typically it’s 30 days.
Insured: The person whose life is being covered under the life insurance policy.
Juvenile Whole Life Insurance: Juvenile whole life insurance offers permanent protection by insuring the life of a minor or young adult to help build a strong financial foundation.
Life expectancy: In insurance terms, it’s the statistical age that a person is expected to live based on actuarial data. Life expectancy is how long a person is expected to live based on a variety of factors including the individual’s lifestyle, risk behaviors, gender and health conditions.
Life insurance policy: A contract between an individual policyholder and an insurance company. Under this contract, the policyholder makes payments in exchange for a disbursement or payment of money called a death benefit to a beneficiary or beneficiaries when the policyholder dies. Beneficiaries are typically family members or people who depend on your income to meet their daily needs.
Life insurance premium: The amount of money you pay to your life insurance company in exchange for your policy/coverage.
Lump-sum: These are the most common type of life insurance payouts. It is when a large amount of money is paid out all at once instead of being broken up into smaller payments. The lump-sum payment goes to the beneficiaries giving them immediate access to the money which helps provide financial security when the insured passes away.
Nonforfeiture: A nonforfeiture clause is an insurance clause allowing an insured to receive full or partial benefits or a partial refund of their premiums after a lapse in payment.
Payout: The amount of money your life insurance company pays to the beneficiaries of the policyholder when they die. Also known as a death benefit.
Policyholder: The policyholder is the person who “owns” the policy. They pay the premiums and choose the beneficiaries who will receive the payout on the policy when they die.
Policy owner: Also known as the insured, it’s the person who owns the life insurance policy. It may also be a relative of the insured, a partnership or a corporation.
Premium payments: This is the amount you pay to your insurance company, typically each month, for your life insurance policy. Your life insurance premium is the cost of your coverage.
Standard risk: This is the risk that an insurance company’s underwriting standards considers common or normal. Therefore, it would qualify for standard premium rates without special restrictions
Term Life Insurance: Term life insurance offers temporary coverage for a set number of years and affordable, level premium payments. Term life insurance can help your loved ones cover short-term needs, such as paying off a mortgage, outstanding debts or education expenses.
Underwriting/Underwriters: Insurance underwriters connect actuaries and customers and apply the tables developed by actuaries to the real world by inputting a customer’s specific information into their programs and spreadsheets to determine risk. Underwriters determine the risk of taking on specific individuals under an insurance policy.
Universal life insurance: Universal life insurance offers lifelong protection with the unique flexibility to adjust your coverage and premium amounts. The policy’s cash value accumulates tax-deferred and can be used for any purpose to meet your financial goals.
Waiver of premium/Waiver of premium rider: An insurance policy clause that waives premium payments if the policyholder becomes critically ill, seriously injured, or physically impaired.
Whole Life Insurance: Whole life insurance offers lifetime protection that builds cash value at a guaranteed interest rate. Permanent life insurance can help cover long-term needs, such as paying for final expenses, supplementing income, or paying off debts.
We hope that our life insurance terminology glossary helps you gain more confidence when it comes to making important decisions. We’re here for your insurance needs so feel free to click and connect to learn more