Life insurance can be hard to understand, so it can be frustrating to try and figure out all the terms and legal jargon that go with it. But you need to know what each of these terms mean, especially when choosing a life insurance plan. Knowing these terms, or at least having this cheat sheet to refer to, can help you figure out exactly how much your family will receive, how your cash value works, and can help you find the perfect coverage for your family’s financial future. So, to help you with translating some of these complicated terms, here’s your very own life insurance definition cheat sheet.
A
- Accelerated death benefit rider – This is an add-on to your life insurance policy that will pay out part of your death benefits while you’re still living if you’re diagnosed with a terminal illness.
- Accelerated underwriting – Accelerated underwriting cuts down the time it takes to go through the underwriting process. This happens with plans that don’t need a medical exam. Standard underwriting takes 4 to 6 weeks, while accelerated generally takes under 2 weeks.
- Accrued interest – This is the amount that your policy’s cash value has grown over time based on the interest rate chosen when you first bought the plan.
- Accidental death and dismemberment rider – A policy add-on that pays out extra money, up to the full amount of your death benefit if you pass away in an accident or lose a limb in an accident.
- Actuarial table – Underwriters use this table that shows how likely it is you will pass away at a certain age. This chance of dying helps figure out how risky it is to insure you and how much your premiums will cost.
- Annual renewable term life insurance – A one-year level term life insurance policy. It guarantees coverage for one year. You can renew it every year for a higher premium or change it into a permanent policy.
- Annuity – This is when your beneficiaries receive the death benefit in small increments over a long period of time.
- Attending physician statement (APS) – A doctor’s or hospital’s written summary of your medical history. Not every plan requires this.
- Avocation – A hobby, side job, or activity like skydiving, scuba diving, or snowboarding is an avocation. Some hobbies are seen as a higher risk, causing your premiums to increase.
B
- Backdating – Establishes an effective start date of your policy that is in the past. Most insurance companies will let you backdate up to 6 months.
- Beneficiary – The person who gets the death benefit payout from a life insurance policy. This can be one person, several people, an organization and is usually the main reason why people buy life insurance.
- Burial insurance – Also known as final expense insurance, this policy can be used to pay for your funeral and any other costs from the end of your life.
C
- Cash surrender value – This is the amount of money you get from cashing in your permanent policy. It’s typically the current cash value minus outstanding loans and interest fees. Typically the surrender value is between 50% and80% of the actual cash value of the policy.
- Cash Value – A savings component of a permanent life insurance policy. It acts as a savings account or an investment account. As you build your cash value it can be taken out any time as a loan. Or it will be paid out with your death benefit when you pass away.
- Child rider – An add-on to a life insurance policy that will pay a death benefit if the policyholder’s child passes away.
- Claim – Filing a claim means giving the insurance company the necessary paperwork to receive the death benefit. This usually includes proof that the beneficiary is who they say they are and proof the policyholder has passed away.
- Collateral assignment – This is when you use your life insurance as collateral for a loan. If you pass away before the loan is repaid then your death benefit will be used to pay off the loan instead of going to your beneficiaries.
- Contestability period – If you die within the first one to two years of your policy, your insurance company can look over your claims and refuse to pay your beneficiaries the death benefit if they find evidence of fraud.
- Contingent beneficiary – The person you choose to get the death benefit from your life insurance if your primary beneficiary can’t get the money. For example if your beneficiary is a minor at the time of your passing, a contingent beneficiary would receive the money.
- Critical illness rider – An add-on that will pay out a lump sum to the policyholder while they are still alive if they are diagnosed with a critical illness. Common critical illnesses are heart attacks, cancer, strokes, kidney failure, and comas.
D
- Death benefit – When a policyholder dies, the life insurance company pays their beneficiary a tax-free lump sum.
- Decreasing term life insurance – a type of term life insurance policy where the death benefit goes down over time while maintaining the same premium. These are typically used to cover a loan or debt such as a mortgage.
- Disability income rider – A policy add-on that gives you a small amount of money every month if you become disabled and can’t work. You can also buy this benefit as a separate long-term disability policy.
E
- Effective date – The date when a policy is considered to be in effect.
- Exclusions – Provisions of an insurance policy that explain the coverage and any situations where the beneficiaries will not receive benefit pay outs.
F
- Free look period – The “free look” period is the first few days of your insurance policy. During this time, you can cancel your coverage without paying a fee and get your premiums back. Most of the time, this time lasts between 10 and 30 days.
G
- Grace period – A clause in an insurance policy that gives the insured more time to pay any premiums that were not paid on time. The policy is still in effect during the grace period. Usually, a life insurance policy gives you 31 days to change your mind.
- Group coverage – Life insurance that is offered by an employer, union, or organization and covers more than one person through a single policy.
- Guaranteed issue – A type of life insurance that has to be approved. For applicants with guaranteed issue policies, companies can not deny enrollment for any reason even if they have a risky medical history or dangerous hobbies.
I
- Irrevocable – A part of a life insurance policy that says the policyholder can’t make changes to the contract. Or get rid of the beneficiary without the beneficiary’s permission.
J
- Joint life insurance – A policy that has more than one owner, usually a couple.
L
- Lapsed – When a policy is canceled because the premiums were not paid on time.
- Level term life insurance – In a level term life insurance policy, the premiums and death benefit stay the same for the whole contract.
- Life insurance classification – A look at your health, family history, and hobbies to figure out how much of a risk you are as a person who wants to buy life insurance. The lower your premiums will be, the better your life insurance classification. There are four groups: preferred plus, standard plus, standard, and standard.
- Long-term care rider – A policy add-on that lets you use money from your death benefit to pay for long-term care, like a nursing home or a private nurse. A long-term care rider can be used if you can’t take care of yourself because of a long-term illness.
M
- Medical information bureau – A source that life insurance companies use to check your medical history and get a better idea of your health. The Medical Information Bureau gives information that insurers use to make sure that you were honest on your application.
- Mortgage protection insurance – A life insurance policy that pays off your mortgage if you die suddenly and are no longer able to do so. Mortgage protection insurance pays your lender directly and makes sure that your family won’t have to keep making expensive mortgage payments.
P
- Paramedical exam – A paramedical exam is a health exam that the insurance company asks for to figure out how healthy a life insurance applicant is and what health class he or she is in. The applicant doesn’t have to pay for the medical exam. Which can be done at a medical center or at home.
- Permanent life insurance – A life insurance policy that covers the person for his or her whole life. Permanent life insurance has a cash value feature. Which makes it more expensive than term insurance and usually only a good choice for people in certain situations.
- Preferred rates – The amount you pay for premiums if your health is rated as “Preferred.” If you are in good health and put in the “preferred” category for life insurance, you will get good rates.
- Premium – Your premiums are the payments you make to your insurance company to keep your policy in effect. Your life insurance policy stays “in force” as long as you pay your premiums.
- Primary beneficiary – The person you choose to get the money from your life insurance when you die. If you have more than one beneficiary, this person will get the money from your life insurance first.
R
- Return of premium rider – A policy add-on that gives back the policyholder’s premiums if he or she outlives the policy’s term. The cost of your premiums can go up by about 30% if you add a “return of premium rider.”
- Riders – Add-ons to a life insurance policy that sometimes cost extra but make the coverage more comprehensive.
S
- Standard risk – A person who wants to buy life insurance and has an average expected life span.
- Substandard risk – A person with substandard risk can be insured, but the insurer takes on more risk because the person is sick or smokes and has a shorter life expectancy than most. If your risk rating is below average, your premiums will be higher than usual.
- Suicide clause – Most life insurance policies have a clause. It lets the insurance company withhold the death benefit if the policyholder commits suicide in the first year or two.
- Survivorship life insurance – Permanent life insurance that covers both people in a marriage. Survivorship life insurance pays out the death benefit after both policyholders have died. This is usually done to keep the beneficiaries from having to pay estate taxes.
T
- Term – How long a policy stays in effect.
- Term conversion rider – Most policies come with an add-on that lets you change a term life policy into a permanent life policy at the end of the term. A term conversion rider lets people keep their life insurance without having to go through more underwriting.
U
- Underwriting – The way an insurance company figures out how risky it is to insure a person who wants life insurance. During the underwriting process, the applicant’s health, medical history, hobbies, health history of their family, and the results of a paramedical exam are all looked at.
- Universal life insurance – Permanent life insurance in which the policyholder can change the amount of the premiums if his or her finances change. Universal life insurance policies have a cash value that can pay the policy premiums and earn interest at the same time.
V
- Variable life insurance – A type of whole-life insurance that can be used to save money over time. Variable life insurance policies have high premiums. And are a risky way to invest because you can lose the cash value due to changes in the market.
W
- Waiting period – A waiting period is how long an insured person must wait before their coverage starts.
- Waiver of premium rider – A policy add-on that lets the policyholder avoid paying premiums if he or she gets sick or hurt and can’t work. When the disability ends, the premiums start again. Most of the time, it’s hard to get a waiver of premium rider. And the disability must fit into certain parameters.
Life Insurance With EZ
Everyone has their own needs, priorities, and ways they can spend their money. At EZ.Insure, we know that you and your family want the best coverage. But we also know you have to stay within your budget. So, we will do everything we can to find you the best policy at the best price. And we want to make it as easy as possible for you to do so! We’re here to help, and the best part is that everything we do is free. We will help you with everything. From answering all of your questions to helping you choose a policy and finish the enrollment process. We will also help you after your plan has started. To start, just type your zip code into the bar below or give us a call at 877-670-3560.
