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The A-Z of Basic Life Insurance Terminology

Actuary, grace period, face amount, death benefit, riders: if you’re researching life insurance, you will come across a lot of terms that you might be unfamiliar with. Learning what all of these terms mean can be overwhelming, and doesn’t make the process of searching for the best policy for your family any easier. But it doesn’t have to be overwhelming! Once you learn the following basic life insurance terminology, it will all make more sense, and will make the search process easier.

Actuary

This is the person, typically an insurance industry math expert, who gathers and evaluates your data. They will determine your risk classification, and set your life insurance premiums based on the analysis of your information.

Beneficiary

This is the person who will receive your policy’s benefits when you pass away. You can select one or more beneficiaries, and can add or change them at any time.

Burial Insurance

A type of life insurance that only pays for the policy holder’s burial. Normally these policies will pay out between $5,000 and $25,000 in benefits. If your burial expenses are less than the benefit amount, your beneficiary gets to keep the rest.

Contingent Beneficiary

This person will receive the policy’s benefits in the event that the primary beneficiary is no longer living when you pass away.

Cash Value

With some types of life insurance, like whole life insurance and permanent life policies, you accumulate a cash value along with your death benefit. If you access your cash value, it may affect the amount of the death benefit your beneficiary will receive, or you might have to make additional premium payments to keep your policy up to date.

Cash Surrender value

This is the amount of money the insurance company pays you if you voluntarily terminate a life insurance policy that earned cash value before your death, or before your policy matures.

Conversion

Some policies have a provision that allows you to exchange your current policy for another life insurance policy, without any underwriting requirements. For example, you can convert a term life insurance policy into whole life insurance.

Death Benefit

This is the amount of money your beneficiary will get in the event of your passing. Typically they have the freedom to determine how to use that money for your things like funeral expenses, debts, and more.

Face Amount

This is the amount of coverage purchased, and paid out to your beneficiary in the case of your (the policy holder’s) death or at maturity of the policy.

Grace Period

This is the amount of time between your premium’s due date and the day that your policy will get canceled, or lapse.

Insurable Interest

This is when individuals who are related to you have to prove that they would suffer financially if you died, so they can be listed as a beneficiary on a policy.

Lapse

This is when your life insurance policy becomes inactive and coverage terminates due to non-payment past the grace period.

Paid-up Insurance

Only available with whole life insurance policies, this is the amount of life insurance available with no premium payments due, after the surrender value accrues enough to cover the premium payments.

Premium

The payment you make to the life insurance company for your coverage. You can opt to pay monthly, semi-annually, or annually.

Rate Class

You will be assigned to a rate class during the underwriting process, which will dictate what you will pay for your life insurance coverage.

Rider

Also sometimes called an endorsement, a rider is add-on coverage to your policy that provides additional benefits or exclusions.

Suicide Clause

medical record written on a paper — *When you apply for permanent life insurance, you will have to undergo an underwriting process, which includes information about your medical record.*

An agreement in life insurance policies that define the life insurance company’s liability in the event that you die by suicide. Typically, you will need to have held the policy for 2 years for your policy to cover death by suicide.

Underwriting

The process used by insurers to review each new policy application. They will gather your medical and driving records, and assess your risk, so they can determine how much your premiums will be.

Your family has financial obligations that will not go away when you are gone; they will need your help more than ever with their expenses, and the last thing you want them to worry about is money while they are grieving. The best way to understand how it all works, and find the right life insurance policy for you and your specific needs is by working with an agent who specializes in life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.

Should You Have Life Insurance for Your Children?

We know what you’re thinking: life insurance for children? That’s not something I even want to think about! And why would I even need it? We understand that it’s not easy to think about the death of your child, because we all want our kids to live long, healthy lives, but as a parent you always need to think about the unexpected in life. That’s why purchasing a life insurance policy might be a wise financial decision – but is it necessary? Well, it depends: you will need to consider your family’s needs, and if it makes sense to purchase life insurance for your child/children.

What Is Child Life Insurance?

young girl hugging a man — *You can purchase a permanent life insurance policy for your child/children.*

Child life insurance is exactly what it sounds like: policies that cover the life of a minor, typically purchased by a parent or grandparent. Generally, these policies are a type of permanent life insurance, which means the policy will be in effect for your child’s entire life, and your child can take ownership of the policy when they turn 18 (or in some cases, 21). In addition, a portion of the premiums you pay grows over time, so your child’s policy will be building a cash value that they can use later in life.

Pros & Cons of Life Insurance For Children

If you’re considering life insurance for your children, and are unsure whether one of these policies is right for your family, think about the following pros and cons before deciding to buy a policy:

Pros

Guaranteed insurability for your child, which will be beneficial if your child develops a pre-existing condition, such as diabetes or high blood pressure, or if they choose to have a risky occupation later in life. If your child already has life insurance, they won’t have to worry about being denied by insurance companies when they’re adults.
The money that builds cash value over time can be used towards college, or for a down payment for a home when your child is grown up.
Children’s life insurance is helpful in covering unexpected funeral costs and grief counseling if necessary.

Cons

Your child can find affordable life insurance when they are in their 20s, and the chances that they will develop health issues are low until they are much older. Therefore, life insurance for your child might not be necessary.
Cash value takes time to grow based on your premiums paid, so it’s not necessarily a reliable investment for them in the future.
It is uncommon that a child will die when they are young, so the risk of going without life insurance for them might outweigh how much the policy accumulates over time. You can opt for a child rider in your life insurance policy instead if you want extra coverage for them.

Do You Need It?

If you are considering life insurance for your child or children, you should consider why you might need it, as well as assess your budget and determine if the benefits outweigh the costs. Can you cover final expenses if the unexpected happens? Do you want a policy that your child can carry with them for the rest of their lives, and will give them cash value for college, buying a car, or other expenses? Does your family have a history of hypertension or diabetes and you worry they will not be able to find affordable life insurance when older? Or do you think they will be okay and will be able to get an affordable plan when they are older?

If you are interested in providing your family with financial stability when you are gone, or are looking for coverage for your children, life insurance is the right choice for you. For low monthly payments now, you can make sure your children are taken care of later. Picking a life insurance policy is an important decision, but you have multiple coverage options, some with added benefits. To make the decision-making process easier, consider using online tools, or speaking with an agent. We have provided the top Life Insurance companies in the nation that offer hassle-free assistance and the most competitive rates below. Always check multiple sites to make sure you have bargaining power and know the different advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.

Set It & Forget It: Single Premium Whole Life Insurance

Let’s face it, there are a lot of different life insurance policies out there to choose from – in fact, there are so many that it can become overwhelming trying to find the right one for you. How do you choose? Start by narrowing it down this way: if you want life insurance for a specific amount of time, you can choose a term life policy, but if you want a more permanent policy, whole life insurance is the way to go.

Whole life insurance is the most common type of permanent insurance policy, and rightfully so- there are so many great benefits to these policies. If you decide to go the whole life insurance policy route, the next step is to check out all of the different whole life insurance policies that are available. You can choose from policies like level premium whole life, limited payment whole life, and single premium whole life insurance, which is the type of policy we will focus on below, so you can decide if it might be right for you.

Single Premium Whole Life Insurance

hundred dollar bills in a large stack — *Single premium whole life ,gives you the opportunity to pay for your policy in a single upfront lump-sum.*

Single premium whole life is permanent life insurance that covers you until you die. But unlike with other types of whole life insurance, with which premiums can be paid on a monthly or annual basis, with single premium whole life, you can pay for your policy in a single upfront lump-sum. In return, you receive a guaranteed death benefit amount; these policies also have a cash value that will grow over time, and that you can borrow against.

For example, a single premium whole life policy might have one $25,000 premium at the start of the policy and no more payments will be needed after that. When it comes to how much the death benefit will be, it will depend on the amount of money invested, as well as your age and health when you purchase the policy.

The Benefits

Having the ability to pay your premium off at once and not having the hassle of monthly or annual payments is a great plus, since you will not have to worry about forgetting or being unable to make a payment and losing your policy forever. Not only that, but there are tax benefits to whole life: you can pass on death benefits to your family tax-free without the time delay and expense of probate. In addition, in some cases, you will have tax-free access to the death benefit to cover any long-term care costs (although there are cases when you might have to pay some tax, more on that below), which can protect your other assets so you do not have to dip into them. If you do choose to use part of your death benefits for long-term care expenses, the death benefit remaining in the policy when you die will pass income-tax free to your beneficiaries. And if you don’t use any of it, the money will go to your loved ones just as you had originally planned.

Another benefit to making one upfront premium payment is that the cash value of the policy will be larger than with other types of policies, because the policy is fully funded from the start of coverage, so the value can grow more quickly. For example, if your premium is $30,000, some of this will go to fees, and some of it will go into the cash value: if the cash value is $20,000 (after the fees are paid), and you were guaranteed a 3% interest rate, the policy will grow $600 in the first year.

How You Can Withdraw Money

atm machine — *If you want to withdraw money, you have to take out a loan that can be up to 90% of the policy’s cash surrender value.*

The only way to withdraw money from the cash value of a single premium whole life insurance policy is by taking out a loan. The loan amount can be up to 90% of the policy’s cash surrender value (cash surrender value is the sum of money an insurance company pays to the policyholder or account owner upon the surrender of a policy/account). Insurance companies usually have a minimum amount that you can take out, so be sure to check that out. You can typically withdraw 10% of the premiums paid, or 100% of the policy’s gains (whichever is higher) in each calendar year without having to pay a surrender charge.

It is important to note that if you withdraw cash from the policy, either as a loan or partial surrender, there will be some tax implications. Because this type of policy is considered a modified endowment contract (MEC) by the IRS, meaning that it has been funded with an amount of money that exceeds federal limits on policy funding, withdrawals are subject to income tax on the earnings. Typically there is a 10% IRS penalty on all gains withdrawn or borrowed before age 59½. You will also have to pay income tax on those profits, and if you cash in the policy, the insurance company might hit you with a surrender charge.

Is This Type of Policy Right For You?

Single premium whole life insurance is best for someone who has the ability to pay their premium all in one shot, and who wants a tax-sheltered legacy that their family can receive when they are gone. These policies are a great way to maximize your cash value growth so you can use that money as you get older and possibly require long-term care. If you are considering a single premium whole life insurance policy, you should first consider if you can afford it, how much coverage you will need, and any riders you would like to add on.

The best way to find the right life insurance policy for you and your specific needs is by working with an agent who specializes in life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.

Key Person Insurance & Your Business

Running a company is not easy: not only are you busy with setting up your business, hiring the right people, and staying on top of your bills, you also have to worry about insuring your business so that you’re protected against property damage and lawsuits. But have you thought about insuring your most valuable asset, your key employee/s? There is a way that you can financially protect your business against the loss of a partner or other key employees and the damage this loss can do to the business you worked so hard to build: purchasing a key person insurance policy.

What Is Key Person Insurance?

silhouette of a hand picking up a silhouette of a man amongst other men — *Key person life insurance can help cover costs of hiring and training a new person to replace the key person of a business.*

Key person insurance is a life insurance policy that a business can take out on the life of an owner, executive, co-founder, business partner, or any other individual that is considered critical to the business, and whose death would hurt the company financially. Unlike with personal life and disability insurance, with key person insurance, a business entity buys the policy, is the beneficiary of the policy, and pays the premiums. The policy will help with any losses that stem from the death of your key employee, including protecting your company from profit loss, guaranteeing your business loans, and protecting your shareholders.

In the event of the passing of the key person, your business will receive the insurance payout, which can be used to:

Cover the cost of hiring and training a replacement for the key person
Offset day-to-day operating expenses
Supplement lost revenues until a replacement can be hired

In the instance that your company can no longer operate after the key person passes, the money can be used to:

Pay off any debts
Provide severance to employees
Distribute money to investors

Essentially, this type of life insurance will give your business options other than bankruptcy in the face of the loss of a key employee.

Which Businesses Should Consider Key Person Insurance?

This type of life insurance policy can be especially beneficial for small businesses or startups that have a small team, and are most often used to insure the owner or founder of the small business. But this doesn’t mean that this type of insurance isn’t also useful for larger scale businesses: every business has at least one key employee whose death would cause financial distress to the company.

How Much Does Key Person Insurance Cost?

red money sign next to a green question mark — *The price of key person insurance varies on multiple factors, which is why it is best to compare plans with an agent.*

The price of a key person insurance policy varies depending on multiple factors, including how large of a policy you would like to take out: you can request policies that pay out as little as $100,000 or as much as $1 million. Other factors that insurance companies take into consideration include the insured person’s age and overall health, as well as which type of insurance policy you decide to take out; for example, as with other types of life insurance, you can opt for either a permanent life insurance policy or a term life insurance policy, which is significantly cheaper. In order to find the right plan, you will have to compare different policies from different insurance companies, because they all offer different levels of coverage at different prices.

The best way to find the right key person life insurance policy for your business is by working with an agent who specializes in key person life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder for your business by a financial burden, check key person life insurance rates today.

Do I Need More Than One Life Insurance Policy?

If you’re in the market for life insurance, you’ll come across many different types of policies, and you might be unsure which is the best for you. If you already have a life insurance policy, you might be unsure if it still has enough coverage for your family as your needs change: maybe your mortgage payments have increased, or maybe an unexpected expense has hit your family budget. The question is, if there isn’t one policy that seems exactly right for you, or if you find that you need more coverage, can you choose to purchase more than one life insurance policy? And do you need to?

How Many Policies Can You Buy?

abstract question mark made up of little dots connected — Technically *there* is no limit as to how many life insurance policies you can get.

There are no laws or regulations regarding how many life insurance policies a person can have, so technically you are allowed to purchase as many policies as you want. For example, you can choose to purchase multiple term life insurance policies, which would provide coverage for things like your mortgage, college tuition, or final expenses, and a permanent life insurance policy, which would allow you to leave an inheritance for your children on top of all that.

It’s important to note, though, that while you can have as many life insurance policies as you want, life insurance companies might have some concerns about how many policies you have, so before purchasing more than one policy, you will need to determine if you need more than one.

Do You Need More Than One Policy?

There are certain scenarios in which it makes sense to buy more than one life insurance policy. These situations include:

You need more coverage– If you would like a higher death benefit, you can purchase multiple term life insurance policies and a permanent life insurance policy, or any other combination of policies. Having more than one will allow you to change your coverage amounts, and will help ensure that your family is fully covered throughout the years. For example, if you are growing your family and want extra coverage until your children become adults, you can purchase a second term policy to cover the next 15 or 20 years of their lives.
You don’t want to put all your eggs in one basket– Unfortunately, life insurance companies can go out of business, and if this happens to your carrier, you will lose your policy. In this case, your family will not receive a death benefit if something happens to you; if, however, you have multiple policies, your family’s financial stability will still be ensured in the event of your passing.
You own a business– If you are a business owner, you might need a separate life insurance policy to take care of your family, and one to cover business loans.

When applying for more than one life insurance policy, avoid applying for multiple policies at once: multiple concurrent applications can make it look like you are applying for more coverage than you really need, which can lead to you getting denied. If you are interested in purchasing multiple policies, the best thing to do is to speak with an agent and compare different policies from different companies before you make your decision.

Policy Riders

If you decide that you would like more coverage but do not want to buy another life insurance policy, you have the option of adding policy riders to a policy instead. There are multiple types of insurance riders that you can add on to a policy to get more protection in specific areas, and to fill coverage gaps. For example, you can add a term conversion rider when you purchase a term life insurance policy, which will allow you to convert your term life insurance policy into a permanent life insurance without undergoing a medical exam.

As your life changes and your responsibilities change, you might find yourself needing more life insurance coverage, and the best way to make sure your family is fully protected might be to have more than one life insurance policy. There are many different types of policies to choose from, so if you’re not sure where to begin, consider using online tools, or speaking with an agent. The right policy for you is out there! We have provided the top insurance companies that offer life insurance policies below; each can give you hassle-free assistance and the most competitive rates in the nation. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.

Covid-19 and Life Insurance Coverage

The events of the past year and a half, during which we tragically lost so many people to Covid-19, have prompted many people to think more about preparing for the unexpected. After all that has happened, you might be thinking more about life insurance; for example, you might be wondering if a policy will still deliver death benefits if the policy owner dies from Covid-19, or if insurance companies have changed their policies, meaning you’ve missed your opportunity to buy life insurance. So how are insurers handling Covid-19? Do they cover deaths from it? And has the pandemic affected how they are selling policies?

Can I Get Life Insurance?

Life insurance is important because it offers financial protection for your loved ones if you pass away unexpectedly – it’s no wonder, then, that so many people have realized during the pandemic how important purchasing a policy is. In fact, application activity for U.S. life insurance was up nearly 8% year-over-year in 2020 among people under age 44, according to MIB Group’s Life Index. And there’s no need to worry: you can absolutely still purchase a life insurance policy – and thankfully rates have not been not impacted by Covid-19! With that being said, though, there are a few exceptions to be aware of.

What If…

I’ve Been Overseas Recently?

Because of uncertain pandemic conditions in other countries, some insurance companies will postpone your application approval if you have recently traveled internationally. They will also postpone your application approval if you have plans to travel abroad, or if a member of your household has recently returned from travel outside of the U.S. Generally, if you have traveled overseas, you can submit your life insurance application 30 days after the date you returned to the U.S.

If you do not disclose any international travel or plans on your application, your insurance company can deny claims to your beneficiaries.

I Have Covid-19?

Each company will treat your application differently if you have or have had Covid-19, but in most cases insurers will postpone your application for 90 days, or until you have made a full recovery, if you are currently sick. Depending on the severity of your symptoms, though, some insurance companies could postpone your application for up to six months; in addition, if you – and others – suffer from long-lasting effects of the virus, life insurers will incorporate that information into their underwriting standards, which could affect the cost of coverage for Covid-19 survivors in the future. The most important thing to remember, though, is that you need to be honest on your application about having the virus: lying about it will automatically mean that your beneficiaries will not be able to collect your policy’s death benefit.

I Die From The Virus?

Traditional life insurance policies, such as whole and term life, will likely cover deaths from Covid-19, according to spokespeople from industry research group LIMRA, State Farm, and Farmers New World Life.

Your life insurance claims will be paid out, even if you pass away from the virus, as long as you:

Were approved for a life insurance policy, either before or during the pandemic.
Did not omit information or lie on your application.
Paid your insurance premiums and did not allow your policy to lapse.

The Covid-19 pandemic has been hard on many Americans, and the death toll in the U.S. has caused many younger Americans to worry what would happen to their families if they were to pass. The sad reality that many people have passed away unexpectedly from the virus, and have left their families unexpectedly, has put a new perspective on the importance of life insurance.

Remember, you can still purchase a life insurance policy and financially protect your family, as long as you are honest during the application process. If you’re looking for a policy and are unsure where to begin, work with an agent who specializes in life insurance; this is the best way to find the policy that is right for your specific needs. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.