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Glossary of Life Insurance Terms


Accelerated Death Benefits -- Benefits available in some life insurance policies prior to death.

Accidental Death Benefit -- A provision added to a life insurance policy for payment of an additional benefit in case of death as a result of an accident. This provision is often called "double indemnity."

Annuity -- A life insurance product that provides an income either for a specified period of time or for a person's lifetime.

Automatic Premium Loan -- A provision in a life insurance policy that any premium not paid by the end of the grace period (usually 31 days) will be automatically paid by a policy loan if there is sufficient cash value.

Beneficiary -- The person or financial instrument (e.g., a trust fund) named in the policy as the recipient of insurance money in the event of the policyholder's death.

Cash Value (Cash Surrender Value) -- The amount available in cash upon surrender of a policy before it becomes payable upon death or maturity.

Convertible Term Insurance -- Term insurance that offers the policyholder the option of exchanging it for a permanent plan of insurance without evidence of insurability.

Cost Index -- A way to compare the costs of similar plans of life insurance. A policy with a smaller index number is generally a better buy than a comparable policy with a larger index number.

Cost-Of-Living Rider -- An option that permits the policyholder to purchase increasing term insurance coverage. The death proceeds increase by a stated amount each year, to coincide with an estimated increase in the cost of living.

Current Assumption Whole Life -- A variation of universal life insurance, this product involves fixed premiums and fixed death benefits. Its cash value growth depends on market conditions. If they are favorable and if premiums paid in the policy's first year are large enough, premiums for one or more years may be reduced to zero.

Dividend -- An amount of money returned to the holder of a participating policy. The money is a partial refund of the premium paid. It results from actual mortality, interest and expenses that were more favorable than expected when the premiums were set.

Double Indemnity -- (See Accidental Death Benefit.)

Face Amount -- The amount stated on the face of the policy that will be paid in case of death or at maturity. It does not include dividend additions or additional amounts payable under accidental death or other special provisions.

Grace Period -- A period (usually 31 days) following each premium due date, other than the first due date, during which an overdue premium may be paid. All provisions of the policy remain in force throughout this period.

Guaranteed Insurability -- An option that permits the policyholder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.

Insured -- The person on whose life an insurance policy is issued.

Lapsed Policy -- A policy terminated at the end of the grace period because of nonpayment of premiums. (See Nonforfeiture Values.)

Level Premium Insurance -- Insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year, and is more than the actual cost of protection in the earlier years of the policy and less than the actual cost in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.

Living Benefits> -- (See Accelerated Death Benefits.)

Loan Value -- (See Policy Loan.)

Mortality Table -- A statistical table showing the death rate (probability of death) at each age.

Mutual Life Insurance Company -- A life insurance company owned by policyholders who share in the company's surplus earnings.

Non-forfeiture Values -- The value of the policy if cancelled, either in cash or in another form of insurance. Also available to the policyholder if required premium payments are not paid.

Non-participating Insurance -- Insurance on which no dividends are paid.

Paid-up Insurance -- Insurance on which all required premiums have been paid.

Participating Insurance -- Insurance on which the policyholder is entitled to share in the surplus earnings of the company through policy dividends that reflect the difference between the premium charged and the cost to the company of providing the insurance.

Policy -- The printed document issued to the policyholder by the company stating the terms of the insurance contract.

Policy Dividend -- (See Dividend.)

Policy Loan -- Under an insurance policy, the amount that can be borrowed at a specified rate of interest from the issuing company by the policyholder, who uses the value of the policy as collateral for the loan. In the event the policyholder dies with the debt partially or fully unpaid, the insurance company deducts the amount borrowed, plus any accumulated interest, from the amount payable.

Premium -- The payment, or one of the regular periodic payments, that a policyholder makes to own an insurance policy.

Producer -- An authorized representative of an insurance company who sells and services insurance contracts.

Reinstatement -- The restoration of a lapsed policy to full force and effect. The company requires evidence of insurability and payment of past due premiums plus interest.

Renewable Term Insurance -- Term insurance providing the right to renew at the end of the term for another term or terms, without evidence of insurability. The premium rates increase at each renewal as the age of the insured increases.

Rider -- An amendment to an insurance policy that modifies the policy by expanding or restricting its benefits or excluding certain conditions from coverage.

Risk Classifcation - (See Underwriting.)

Settlement Option -- One of several ways, other than immediate payment in a lump sum, in which the insured or beneficiary may choose to have the policy proceeds paid.

Stock Life Insurance Company -- A life insurance company owned by stockholders who share in the company's surplus earnings.

Straight Life Insurance - (See Whole Life Insurance.)

Term Insurance -- A plan of insurance that covers the insured for only a certain period of time (the term), not for his or her entire life. The policy pays death benefits only if the insured dies during the term.

Term Rider -- Term insurance that is added to a whole life policy at the time of purchase or that may be added in the future.

Underwriting -- The process of classifying applicants for insurance by identifying such characteristics as age, sex, health, occupation and hobbies. People with similar characteristics are grouped together and are charged a premium based on the group's level of risk. The process includes rejection of unacceptable risks.

Universal Life Insurance -- A flexible premium life insurance policy under which the policyholder may change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the amount or timing of premium payments. Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at varying rates.

Variable Life Insurance -- Life insurance under which the benefits relate to the value of assets behind the contract at the time the benefit is paid. The assets fluctuate according to the investment experience of funds managed by the life insurance company.

Waiver Of Premium -- A provision that sets certain conditions under which an insurance policy would be kept in full force by the company without the payment of premiums. It is used most frequently for those policyholders who become totally and permanently disabled, but may be available in certain other cases.

Whole Life Insurance (Straight Life or Permanent Life) -- A plan of insurance for life, with premiums payable for a person's entire life.