Life Insurance Glossary: Know the Terms
A key to getting the best life insurance plan is being able to define the terminology. Life Insurance terms are not strictly standardized, but certain terms have the same general meaning wherever you find them. Understand them will help you choose a plan that will prove satisfactory for as long as you need it.
Most of the following glossary terms are related to TERM Life. However, many of them will help define Whole Life and Universal Life as well.
- Annually Renewable: A type of Term Life Insurance that is renewed every year. The premium increases, but the face value generally remains level.
- Beneficiary: The person who will receive a cash payment if you die.
- Benefit: The actual amount of money that is paid by a Life Insurance Company to a beneficiary.
- Contingent: Most people choose a primary and a contingent beneficiary. The Contingent Beneficiary will receive the benefit in the event that the primary beneficiary pre-deceases the insured.
- Decreasing Life: Decreasing Life is a type of term insurance in which the premium remains unchanged for the period of the Term, but the face value decreases.
- Graded Life: A graded life insurance policy is usually sold as “whole life,” but Term variations are available as well. The term “graded” simply means the policy will not pay during the first two or three years. These policies are most often offered to people with chronic illness who do not qualify for any other type of Life Insurance. If you must purchase a Graded policy, look for a Graded Whole life rather than a Graded Term Life.
- Guaranteed Renewable: A term meaning you can not be denied coverage as long as you pay the premium. Also, it means that if a policy contains conversion privileges, it can be converted or renews without medical underwriting.
- Insurability: Usually a reference to medical underwriting, but it can also refer to the existence of criminal records or Medical Information Bureau reports. In order to purchase life insurance, you must be medically and financially insurable, and must also have a reasonably clean record without excessive driving accidents, citations or other background problems. Most companies will either deny coverage or give you an increased rate if you participate in hazardous sports such as vehicle racing, ultra-light aircraft flying, or parachuting.
- Joint / First to Die: A type of joint life insurance that insures two or more people. With the “first to die” variation, the policy pays out when the first person dies.
- Joint / Survivor: Sometimes called “second” or “last to die,” a joint/survivor policy does not pay until the last insured dies. This is often used to protect a business or to provide a legacy to those left behind. However, it expires at the end of the Term. It is also available in Universal Life variations.
- Level: A common term in any type of life insurance. It means that either the face value or the premium will not change during the period of the Term. With a product such as level term, the face amount and the premium remain the same for a specified period.
- Medical Underwriting: The process of checking your medical history to make sure you have no health conditions that would put you at a high risk.
- Modified Term: Be careful when purchasing any type of life insurance that is labeled “modified.” Often it means that something will change, usually the premium. With several term insurance plans on the market, a person has an increase in premium each time he/ she enters a new 5 year age band. The early increases aren't significant, but the increases as a person gets older often mean the insured is unable to keep the policy.
- Premium: The amount of money you pay for the policy. Most people pay monthly, but you can also pay your insurance premiums quarterly or annually.
- Table Rating: Most people are able to buy insurance at either a standard or preferred rate. However, if you have certain chronic health conditions, you may be able to purchase health insurance at a higher premium–indicated by letters of the alphabet–rather than simply being declined.
- TERM Life: A type of insurance that insures you for a specific time period, usually 10 or 20 years. It does not build cash value, and if you stop paying the premiums, the policy will lapse.
- Rider: A benefit added to your basic policy. Riders give you additional benefits–such as a spouse term, children’s term or waiver of cost. They increase the premium but usually the increase is so minimal that the rider is worth having.
- Waivers: Most Term Life can be purchased with either a waiver of premium or a waiver of the cost of insurance. This provides that if you should become disabled prior to the age of 62, the company will continue to pay your premium. You should ask whether the premium will cover renewal costs at the end of the term. If it does, your Term Life may be just as good as having a whole life policy if you become disabled.