Life Insurance Glossary
Accidental death: Some life insurance policies offer an additional payout in the event of “accidental death.” The additional payment as well as the definition of “accidental death” is outlined in the insurance policy.
Beneficiary: A person who is named in a term life insurance policy who will receive a payout of the insured dies while coverage is active.
Cash value life insurance: Cash value life insurance is life insurance that both provides protection in the event of your death and that serves as an investment. The premiums paid are more expensive than the cost of insuring you, and the excess premiums are invested in a variety of investment vehicles. The insurance policy accrues a cash value that can be borrowed against. Cash value life insurance is typically whole life, universal life, or variable life insurance and NOT term life insurance.
Convertible term life insurance: This refers to a term insurance policy that can be automatically converted to a whole life or cash value policy if desired by the insured.
Death benefit: Death benefit is the amount of money that is paid out to the designated or named beneficiaries if the insured dies. Typically, this includes a face amount (the basic amount that will be paid) as well as additional amounts that may be available as a result of accidental death provisions or policy dividends.
Eligibility: Not everyone is able to purchase life insurance. The insurance company will conduct an exam and assess your “insurability.” This means they will make a decision, based on your age, health, and other factors, as to whether you are a good risk and whether they will extend insurance to you.
Insured: The insured is the person who is actually covered by the insurance policy. Also referred to as the “insured life,” this is the person who will trigger a payment of the death benefit if he dies.
Key-man insurance: Insurance purchased in a corporate or business contact on a person who is vital to the success of the business. The policy pays out the death benefit upon the death of the “key-man.”
Level-term or level-premium. With a level term life insurance policy, the premium is set at the same amount during the entire term of insurance so the monthly payments for insurance never change. Typically, the premiums are higher than the actual cost of insurance early on in the policy but lower than the actual cost of insurance later in the insured’s life.
Premium: The premium is the amount paid for the insurance policy. It is set based on age, health, risk factors, and other related factors that impact the likelihood of the insured dying during the policy term.
Policy Owner: The policy owner is the person who purchased and owned the life insurance policy. In some cases, this is the insured himself/herself. In other cases, family members, business partners, or other interested parties may be the policy owners.
Term life insurance: Term life insurance is an insurance policy that provides coverage for a designated period of time, such as 30-years. If the insured passes away during the term of the insurance, the death benefit is paid. At the end of the term, the insurance policy lapses or can be converted to a whole life policy. Some term policies are renewable term policies, which means that can be renewed for a limited number of years after the expiration of the original policy (usually at a higher premium).
Whole life insurance: Whole life insurance is an insurance policy that provides coverage indefinitely over the course of your life. Whole life insurance takes many different forms including variable life insurance, permanent life insurance, and universal life insurance.