Life Insurance Glossary of Terms
Beneficiary: The person who will receive the benefit of the policy. In health insurance, this would be the person for whom health costs are paid. With life insurance, the beneficiary is the person who will receive payment when you die.
Cash (Surrender) Value: The actual amount of money you would receive if you cancel or “surrender” a whole life or universal policy. Your surrender value will be the cash value minus loans and any remaining surrender fees.
Convertibility Features: The ability to convert any policy into something else without underwriting. For example, some companies offer a disability insurance which can be converted to Long Term Care Insurance at age 65. Term insurance can usually be converted to anything else a company offers either during the term or within 30 days of the time the term expires.
Dividend: A portion of the return a company receives from investing premiums. If you have participating life insurance, you might receive a quarterly or annual dividend which you can choose to take as cash or have re-invested in your insurance, thereby lowering your premiums or increasing your cash value.
Face Amount: The amount of insurance that you purchased on a life insurance policy with the intention that it would be paid to a beneficiary if you die. The beneficiary seldom receives exactly the face amount as the company may owe additional interest, or there may be loans against the policy.
Insurability: The determination on the part of an insurance company as to whether they are willing to provide you with insurance. If you are not insurable, it simply means no company in existence is willing to take the risk of insuring you.
Insured or Insured Life: The insured is the person who is covered on any given type of insurance policy.
Level (Life Insurance): The word could apply to the premium, the benefit, or both; it simply means that the dollar amount to which it applies will not change for a specified time period, which could be for a few years or for life. You can have a level benefit with an increasing premium, or a level premium with decreasing benefit, for example.
Paid-up Insurance: Also known as “10 pay” or “20 pay,” this was a popular type of life insurance that allowed a person to pay premiums to a certain age. At that age, the policy would have enough funds built up so the interest would continue to build the policy to its face amount. A paid up policy does not usually have the same amount of cash as its face value unless a person is very close to the age of endowment.
Permanent (Life Insurance): Life insurance that, as the name suggests, lasts your entire life, usually without changes in premium. Modified whole life, however, may have increasing premiums.
Premium: The amount of money you pay every month to keep your insurance in force. You may also choose to pay quarterly, semi-annually, or annually.
Renewable Term: Although a term policy usually ends at the end of a 20 years period (or whatever term you have chosen), you can choose to let it convert to annually renewable. The benefit will stay the same, but the cost will increase quickly and radically.
Term Insurance: Insurance that covers you for a specified time period. It is usually inexpensive because you pay only the cost of insurance and fees. You have no cash value or loan options and no coverage at the end of the term.
Universal Insurance: A type of permanent life insurance with flexible benefits and premiums. If funded properly, it can build a significant cash value, thereby increasing your retirement assets.