Life Insurance Definitions
You Should Know
A type of life insurance that covers you for a period of years and
then expires or must be converted. This is the least expensive type
of life insurance, and has no cash value.
A type of policy that has a savings plan component along with the
life insurance. This is a good type of policy if you want something
that will give you some additional resources later in life.
Life insurance for which you pay a level premium in return for a
level face value. It builds cash which you can borrow against. Note:
if you want a premium that never changes, you want guaranteed whole
life. There are "modified" whole life and "variable" whole life
policies which will have premium changes as you get older.
This is the savings accumulation in a Universal policy. It is money
you can actually draw from if you were to have an emergency. It
grows each month as you pay your premium and as the company applies
A policy that can be renewed every year. Generally, when applied
to a Term life, it means the premium will increase each year.
The person or organization who will receive the payment when the
insured individual dies
All whole life policies build a cash value. This is the amount of
money you would receive if you decided to surrender or "cash in"
your life insurance. If you life to age 100, the cash value will
equal the death benefit.
All insurance companies have a right to "contest" a claim if the
insured dies in the first two years. If an individual lied on an
application or failed to reveal a condition that would have resulted
in denial, the company will refuse to pay the claim. They will,
however, return all of the premium. After two years, the company
has to pay even if you did conceal something.
A common clause usually applicable to a term policy. Once the initial
term expires, the insured usually has the right to convert the term
to anything the company offers; the new premium will be determined
by the age of the insured.
A conversion option for most Term policies and a common form of
mortgage life insurance. The premium remains the same (level), but
the face value decreases each year.
The original amount of insurance for which the insured applied.
This is the benefit that will be paid upon the death of the insured.
Most policies allow you a period of time when your policy remains
in force even if you are late on a payment. Some Universal policies
allow you as much as 60 days. You will, however, need to get caught
up on all past due premiums to bring your policy current.
A type of policy that has no medical underwriting—meaning
anyone can get it—but has a waiting period before it will
pay the entire face value. The waiting period usually does not apply
if the insured dies in an accident. Also, during the waiting period,
the premium plus interest will be returned, so the insured never
actually loses any money.
The conditions you must meet in order for the company to write insurance
on you. If you have severe medical conditions, you are likely to
be turned down.
The term used for the medical review that is conducted prior to
issuing a policy.
The periodic payment you must maintain to have the insurance.
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