Jan 18, 2019

Understanding Life Insurance Terminology

Accelerated Death Benefits: (Also known as Living Benefits) This is a feature that allows the insured who has a terminal illness, to apply to receive a % of his/her death benefits while alive.

Actuary: An expert trained in mathematics who computes premium rates, dividends, risks, reserves, etc., according to probabilities based on statistical records.

Annuity: A contract issued by a life insurance company where guaranteed or variable periodic payments begin at a specified time.  An immediate annuity is a type of annuity contract that provides for the payment of annuity benefits immediately after entering into the annuity contract.  A deferred annuity is the type of annuity contract under which benefit payments are delayed to some future date.

Application: This is a form that is required by the insurance company that provides the criteria upon which an insurance policy is approved and issued.

Beneficiary: The person, persons or entity the insured person has designated to receive the death benefits from a life or accident insurance policy.

Certificate: A summary of provisions of the Group Policy which is delivered to insured members as evidence of coverage when it includes an Individual Schedule of Benefits page identifying who is covered, coverage amounts and effective date.

Claim: A demand made by the beneficiary or the insured to pay the benefits of the insurance certificate.

Contestable Clause:  A provision in life insurance that states the time (called the contestable period) during which coverage may be contested or voided by the insurer based on misrepresentations contained in the application or medical examination. By law, the maximum contestable period is two years.

Coverage: The overall protection and benefits available through an insurance certificate.

Death Benefit: Life insurance proceeds payable to the beneficiary upon proof of the insured's death.

Effective Date (Insurance Date): The date when initial, changed or restored insurance protection takes effect as described in the Certificate.

Evidence of Insurability: Proof that you are insurable. Such evidence is generally obtained through statements on your application regarding your health, avocations and financial condition. In most cases, a medical examination is required.

Exclusion: A policy provision indicating a circumstance or event, such as suicide within the first two years of coverage, which would cause the benefit to be denied.

Face Amount: The same as the ‘Death Benefit,’ the amount of insurance stated on the Individual Schedule of Benefits face page of the life insurance Certificate.

Free-Look Provision: A consumer protection right that gives the insured a stated amount of time to review the certificate after issuance and receipt. The certificate can be returned without claim and voided within this time frame for a refund of all premiums paid.

Guaranteed Issue: When referring to insurance coverage, this is the maximum amount of insurance that will be issued without the need to show Evidence of Insurability.

Insured: The person covered by the insurance certificate.

Level Term Life Insurance: A type of Term Life Insurance where the benefit amount does not reduce as the insured person ages and provides a set period of time (10 or 20 years) that rates are guaranteed not to change. 

Living Benefits: (Also known as Accelerated Death Benefits) This is a feature that allows the insured person who has a terminal illness, to apply to receive a % of his/her death benefits while alive.

Premium: Payments to the insurance company for insurance to take effect and/or for insurance to continue in force.

Rate Guarantee: Refers to the amount of time in which the rate will not change.

Renewal: When an insurance certificate continues to remain in-force by the payment of another premium and provided all terms and conditions are met.

Terminal Illness: An illness or condition for which a patient is expected to die within a certain time period (usually 12 months or less).

Term Life Insurance: Life insurance purchased for a certain period of time (a term).  If the insured dies before the end of the term, a death benefit is paid. If the insured does not die before the end of the term, coverage ends. The rate and benefit amount may be subject to increases or decreases due to age during the term.

Underwriter: An insurance company employee who reviews an application for insurance and decides if the applicant is approved for coverage.

Underwriting: The process of determining a potential insured’s risks for the insurance coverage and possible acceptance or rejection for such coverage.

Volume Discounts: A rate discount that is given when a person selects high coverage benefit amounts.

Waiver of Premium: A feature within the insurance certificate that allows an insurance company to waive the payment of premiums while keeping the certificate in force if the insured becomes unable to work for a period of time because of total disability.

Whole Life Insurance: Permanent life insurance offering protection that covers the insured for the whole of life.  Whole life offers fixed, level premiums and guaranteed cash value accumulation. It is distinguishable from term life insurance by having a portion of the premium put into a savings feature, so that if the policy is cancelled the insured may receive the ‘cash value’ back.