Life Insurance Lingo 101.
Term life insurance language seems to have come from another planet. Who can understand it? Well, this non-Martian life insurance glossary should help.
Absolute Assignment: The transfer of ownership of a life insurance policy to a separate entity. The assignee becomes the new policy owner. Commonly used when banks require life insurance as collateral for a loan.
Accelerated Death Benefit: This benefit is included with many policies today. It provides for the payment of a portion of the death benefit prior to the insured's death should the insured be diagnosed as terminally ill. The specific requirements vary by company.
Adjustable Life Insurance: A form of life insurance which allows the policy owner to change various benefits of the policy including the face amount, the premium amount, the length of coverage and the length of the premium payment period.
Adverse Selection: The tendency of persons with poorer-than-average health expectations (higher risk) to apply for or continue insurance coverage to a greater extent than persons with average or better-than-average health expectations (lesser risk).
Age Change: The date on which an insured's age changes. In most life insurance contracts this is the date midway between the insured's birthdays. The date of age change depends on whether the insurer uses an age nearest birthday or age last birthday calculation for determining premium rates.
Age Nearest Birthday: A method of calculating an applicant's insurance age. This method is based on a person's nearest birth date for rate calculations. If the person's birth date is within the next six months, they are considered the next age.
Agent: An authorized and licensed representative of an insurance company who sells and services insurance policies. Agents represent the insurance company and typically only sell policies from that company.
Attending Physician's Statement (APS): Information provided by a proposed insured's physician covering medical history and results of medical examinations. It is used to determine the appropriate underwriting classification for the proposed insured.
Aviation Hazard: The increased risk of death or injury resulting from participation in aviation, usually as a pilot. The presence of aviation hazard will often result in extra premium or the exclusion of certain benefits.
Backdating: A procedure used to make the effective date of a policy earlier than the application date. Backdating is commonly used to make the insurance age of the insured at policy issue lower than it actually is in an effort to receive a lower premium. Most policies can be backdated up to six months. Backdating is also commonly referred to as Saving Age.
Benefit: For life insurance, it is the amount of money specified in a life insurance contract to be paid to the beneficiary upon the death of the insured. It is commonly referred to as the Death Benefit. For health insurance, it is the amount of money payable by a health plan for the cost of covered services, as defined in the Certificate of Coverage.
Broker: A licensed representative who sells and services insurance policies. Brokers represent their customers and are usually contracted to offer insurance products from several different insurance companies.
Business Life Insurance: Life insurance purchased for business rather than personal purposes. Examples are insurance owned by a business on the life of a key employee and insurance owned by a business partner on the life of another partner.
Buy Sell Agreement: An agreement for the transfer of business ownership to the remaining owners at the death or retirement of an owner. The transaction is typically funded through a life insurance policy carried on the lives of each individual owner.
Cash Value: The amount of cash accumulated inside some types of permanent life insurance policies. The cash value typically grows over time and often earns a rate of interest, depending on the type of policy. It can be borrowed by the insured or withdrawn when the policy is surrendered.
Change of Beneficiary: A contract provision that allows the policy owner to change the beneficiary whenever desired, unless the beneficiary has been designated as irrevocable. Changes to an irrevocable beneficiary require written permission of the beneficiary.
Child(ren) Rider: An optional policy provision that provides a small amount of life insurance coverage on the lives of the primary insured's children. The amount of coverage varies by company and one rider typically covers all of the insured's eligible children.
Collateral Assignment: The pledge of a life insurance policy or its value as security for the repayment of a loan. The assignee receives rights that are superior to the rights of the original policy owner and beneficiary, to the extent of the obligation owed to the assignee.
Commutation Right: The right of a beneficiary to receive in a single lump-sum the remaining payments under an installment option which was selected for the settlement of the proceeds of life insurance policy.
Company Ratings: QuickQuote provides our customers with the A.M. Best and Standard & Poor's ratings for each of our partner insurance companies as a way to compare the performance and claims paying ability among the companies. It is important to remember that industry ratings are not a warranty of an insurer's current or future ability to meet its contractual obligations, and they do not reflect the performance of the companies' separate accounts. See our ratings definitions for more details.
- A.M. Best: Ratings represent a measure of a company's overall performance. The basis for the rating is mostly quantitative analysis drawn from annual statements.
- Standard & Poor's: Ratings represent a measure of a company's claims paying ability. The basis for the rating is extensive quantitative and qualitative analysis, including interviews and often non-public information.
Conditional Premium Receipt: A receipt given to an applicant when a payment accompanies an application for insurance. If conditions of the conditional coverage are met, the receipt verifies the coverage will be in force from the date of application, provided the insurer would have issued the coverage on the basis of the facts revealed on the application, medical examination and other usual sources of underwriting.
Contestability Period: The time period during which the insurer is can deny a claim if it finds material misrepresentations were made in the application. This period usually covers the first two years a policy is in force. A policy becomes "incontestable" when the contestability period is over.
Contingent Beneficiary: A person(s) designated by the policy owner to receive policy proceeds if the Primary Beneficiary is deceased at the time benefits become payable. This is often referred to as a secondary beneficiary.
Conversion Benefit: This allows the policy owner to change one policy type for another. An example is exchanging a term life insurance policy for a permanent life insurance policy. Most term life insurance policies offer this benefit.
Decreasing Term Life Insurance: A type of term life insurance with a death benefit that decreases each year or policy anniversary. This type of life insurance is typically used to cover a loan balance that decreases over time.
Diagnostic Tests: Tests and procedures ordered by a physician to determine if the patient has a certain condition or disease based upon specific signs or symptoms demonstrated by the patient. Such diagnostic tools include, but are not limited to radiology, ultrasound, nuclear medicine, laboratory, pathology services or tests.
Double Indemnity: The payment of twice the basic benefit in the event of loss resulting from a specific cause or under specific circumstances. This is commonly referred to as an Accidental Death Benefit.
Estate Planning: The planning for the administration of an estate upon the death of an individual. Estate planning typically involves establishing wills and/or trusts to minimize the loss of estate value due to estate taxes and is often funded with life insurance.
Evidence of Insurability: Factual information used by insurance companies to determine an applicant'ss qualification for insurance. Examples of information used may include paramedical exams, medical records, application statements, and motor vehicle reports among others.
Face Page: One of the first pages of a life insurance policy. This page lists the policy specifications such as the name of the insured, the policy owner, the beneficiary, the policy number, the amount of insurance and the premium amount among other things.
Flat Extra: An extra dollar amount per $1,000 of insurance that is charged to cover any extra hazard or special risk such as aviation or hazardous activities. This is commonly referred to as Extra Premium.
Flexible Premium Variable Life Insurance: A type of permanent life insurance policy in which the policy owner may vary the amount or timing of premium payments. Policy values are variable and depend on the performance of a separate investment account.
Free Look Period: The period of time in which a policy owner has the legal right to examine a newly issued policy and return it for a full refund of premium if not satisfied for any reason. The period of time varies by state and is usually between 10 and 30 days with 10 being the most common.
Grace Period: The period of time between a premium's due date and the date the policy will lapse if the premium remains unpaid. This period is usually 30 days. If the insured dies during the grace period, the unpaid premium is deducted from the policy proceeds.
Guaranteed Rates: A life insurance policy provision that guarantees the premium rates will not change during the entire term of the policy. Most guaranteed term life insurance policies have guaranteed rates.
Guaranteed Renewable: An insurance policy provision that guarantees an insurance policy will continue in force provided the policy premiums are paid on time. An insurance company can typically only cancel a guaranteed renewable insurance policy for non-payment of premium.
Hazardous Activities: These are activities that, if participated in may make you inelgible for coverage from the insurance carrier. Examples include, but are not limited to scuba diving, jet, snow, and water skiing, snowboarding, hang gliding, skydiving, paragliding, bungee jumping, mountain climbing, and amateur racing. Be sure to check the specific insurance company details and / or brochure for exact specifics.
HIV Consent Form: A required form completed by the applicant and submitted with the application for insurance. The form discloses to the applicant that the insurance company may test for the presence of HIV in the applicant's blood. By signing, the applicant acknowledges this and provides authorization for the test.
Home Office Urine Specimen (HOS): A full-screen urine test that an insurance company may require of applicants during the underwriting process. The HOS typically tests for the presence of alcohol, drugs or nicotine in the system, as well as medical disorders.
Home Health Care: Medical care provided by trained personnel in the patient's home for patients who do not need the more extensive treatment provided by a hospital, skilled nursing facility, or extended care facility, or for patients who are not capable of going to a medical facility for outpatient care
Incidents of Ownership: Various rights that may be exercised under the policy contract by the policy owner. Some of the incidents of ownership may include rights: (1) to cash-in the policy, (2) to receive a loan on the cash value of the policy, and (3) to change the beneficiary designation.
Incontestability Clause: A life insurance policy provision that states after the policy has been in force for a specified period of time, the company cannot deny a claim based on a material misrepresentation made in the application. The typical period of time for the clause is two years.
Inspection Report: A report sometimes required by an insurance company in conjunction with the underwriting of an application for coverage. The report typically includes information pertaining to the applicant's occupation, health history and financial status. The report is usually completed by the insurance company or an investigative agency.
Insurability: General acceptability by an insurance company of an applicant for insurance based on underwriting review, which may include items such as the applicant's current health status, medical history and driving record among others.
Insurable Interest:The existence of potential financial loss on the part of the policy owner and/or beneficiary(s) in the event of the death of the insured. The policy owner and any beneficiaries must have an insurable interest.
Insurance: A system for reducing risk by transferring the risks of several individual entities to one entity, such as an insurance company. Each individual entity contributes monetarily (premiums) to cover the risk assumed by the insurance company.
Insurance Policy: The physical, written document issued by an insurance company to the policy owner. The insurance policy represents the written contract between the insurance company and the policy owner.
Key Person Insurance: An insurance policy placed on the life of an important person within a company. The policy proceeds are used to offset the loss experienced by the company due to the person's death.
Length of Coverage - The length of time you will be covered by an insurance policy. Length of coverage is typically applied to term life insurance products. Below is an explanation of length of coverage as used on the QuickQuote.com site.
QuickQuote has partnered with approximately 30 different term life insurance companies over the years. These companies offer a variety of coverage options, including the length of coverage. Our selection of companies offers the following coverage lengths:
- 5 years
- 10 years
- 15 years
- 20 years
- 25 years
- 30 years
When selecting the length of coverage, it is important to choose a period that will cover you through life's important events, or personal milestones. We all have reasons for purchasing life insurance and it's important to keep these core reasons in mind when selecting the length of coverage. Some items to consider include:
- Years left on your mortgage
- Years left until your children graduate high school, college, medical school, etc.
- Years left until retirement
- Business succession planning
- Estate taxes
- Establishing a trust for grandchildren
- Providing for dependent relatives
- Funeral expenses
Living Benefit: A benefit that provides for the payment of a portion of the death benefit prior to an insured's death should the insured be diagnosed as terminally ill. The specific requirements vary by company. This is commonly called an Accelerated Death Benefit.
Material Misrepresentation: A statement made by an applicant or proposed insured in the policy's application which is not factually correct. If the truth had been disclosed, the insurance company would not have issued the policy, would have issued it differently, or would have issued it with limited benefits or a higher premium.
Medical Information Bureau (MIB): A service that compiles medical information and application history of individuals who have applied for insurance in the past. Most insurance companies check an applicant's MIB report during underwriting.
Mental Health/Behavioral Health: A condition or disease regardless of its cause, listed in the most recent edition of the American Psychiatric Association's Diagnostic and Statistical Manual of Mental Disorders.
Paramedical Exam/Paramed Exam: A brief physical examination the insurer typically requires of applicants during the underwriting process. The exam is usually performed by a registered nurse at a time and location convenient to the applicant. The exam usually consists of measurements (e.g. height/weight, blood pressure, and heart rate), body fluid samples (e.g. urine, blood) and a medical history questionnaire. The insurance company pays for the exam.
There are some things to consider when selecting payment mode:
Annually is actually less expensive in the long run. Although you pay the entire amount up front, over the course of a year you will pay less. The reason is that insurance companies build in a 'factor' for modal premiums to cover their cost of billing administration. For example, assume your annual premium is $1,000.
- Annual premium = $1,000. Annual cost = $1,000.
- Semi-annual premium = $520. Annual cost = $1,040.
- Quarterly premium = $265. Annual cost = $1,060.
- Monthly premium = $87.50. Annual cost = $1,050.
* All numbers are hypothetical. Actual modal factors vary by company.
Permanent Life Insurance: The type of life insurance that may provide coverage for the insured's entire lifetime. Permanent life insurance policies may include cash value accounts, policy loans, surrender options/fees, etc. Examples are Whole Life Insurance and Universal Life Insurance. Most term life insurance policies can be converted to permanent life insurance policies.
Policy Owner: The individual who owns an insurance policy and who has all contractual rights related to the insurance policy. The policy owner may or may not be the same person as the insured, payor or beneficiary.
Pre-Authorized Check (PAC): A premium-payment arrangement in which the policy owner authorizes the insurer to withdraw the premium payments from a bank account. This arrangement is usually required for the monthly payment mode.
Premium Rate Class: The appropriate price category to which an applicant qualifies according to an insurance company's underwriting guidelines. Common rate classes are Preferred Plus, Preferred, Standard Plus, Standard and Substandard.
Quote: The estimated premium amount for an applicant based on several factors including type of insurance, coverage amount, length of coverage, age, gender, health and medical history, family history, build and approximate rating class. All quotes are preliminary estimates with final rates determined by insurance company underwriting.
Rating Class: The appropriate price category to which an applicant qualifies according to an insurance company's underwriting guidelines. Common rate classes are Preferred Plus, Preferred, Standard Plus, Standard and Substandard.
Re-Entry: A policy provision that allows an insured to renew their term life insurance policy at the end of the term based on their attained age and health status. Evidence of insurability is required for re-entry.
Replacement: The act of terminating a policy with an insurance company and replacing it with a new insurance policy. An internal replacement involves both policies from the same company while and external replacement involves two separate policies, each from a different insurance company. Replacement transactions are highly regulated for the benefit of consumer protection.
Replacement Form: A required form that must be completed if the applicant is replacing existing coverage. The replacement form notifies the existing insurer that the applicant is replacing their policy with a policy from another company.
Reserve: The amount of money an insurance company holds which, with future premiums and an assumed rate of interest, will pay all contractual obligations as they become due. Insurance company reserves are an important factor used to establish a company's industry ratings.
Saving Age: A procedure used to make the effective date of a policy earlier than the application date. Saving age is commonly used to make the insurance age of the insured at policy issue lower than it actually is in an effort to receive a lower premium. Most policies can be backdated up to six months. Saving age is commonly referred to as backdating.
Secondary Beneficiary: A person(s) designated by the policy owner to receive policy proceeds if the Primary Beneficiary is deceased at the time benefits become payable. This is often referred to as a contingent beneficiary.
Spousal Discount: A discount for purchasing life insurance coverage together with a spouse from the same insurance company. Typically, the second policy fee is waived. Spousal discounts are more often seen on permanent life insurance policies.
Stock Insurance Company: An insurance company formed and capitalized through the sale of shares of stock. Those purchasing the stock are owners and share in the company's earnings through stock dividends declared by the company.
Suicide Clause: A life insurance policy provision that states if the insured dies by suicide within a certain period of time from the date of issue (usually two years) the amount payable would be limited to the total premiums paid minus any policy loans or outstanding premiums.
Substance Abuse/Chemical Dependency: The consumption of alcohol or other chemical agents at dosages that place a person's social, economic, psychological and physical welfare in potential hazard, or endangers public health, morals, safety or welfare, or a combination of these.
Term Conversion: A policy provision that allows a term life insurance policy to be converted to a permanent life policy offered by the company for a specified period of time. Usually the insured can convert to a permanent policy at the same amount of coverage without providing evidence of insurability.
Underwriting: The process of evaluating applications for insurance based on an established set of guidelines. Underwriting determines the risk associated with an applicant and either assigns the appropriate rating class for the policy or declines to offer a policy.
Universal Life Insurance: A type of permanent life insurance that combines term life insurance and an investment feature into one contract. Universal Life insurance policies generally offer flexible premium payments.
Whole Life Insurance: A type of permanent life insurance which provides a level death benefit upon the insured's death, or a cash endowment upon policy maturity that is equal to the death benefit. Whole life insurance policies also accumulate cash values.
Yearly Renewable Term (YRT): A type of term life insurance policy that provides a level death benefit with premiums that increase each year with the insured's age. YRT is also referred to as annually renewable term.