Accelerated Death Benefit: A policy provision or rider that lets you collect part of your death benefit before you die. If you have a terminal illness the policy advances you a specified part of your death benefit to pay medical bills or other expenses. The amount is subtracted from the death benefit your beneficiary receives. Some policies also permit you to use the death benefit to pay for long-term care (nursing home) expenses. Also called living need.
Accidental Death: A provision or rider that promises to pay more (usually double) if you die in an accident. Also known as double indemnity.
Annuity: A contract purchased through an insurance company, usually in order to accumulate funds that can be used after retirement. After a specified age, the insurance company promises to pay you monthly (annuity) payments. The company is taking the risk that you could live longer than expected, meaning the company would pay you more than you had invested.
Annuitant: A person who receives an income benefit from an annuity.
Assignment: Giving rights under the insurance policy to someone else. You can assign beneficiary rights or policy ownership.
Automatic Premium Loan: A provision in a policy that authorizes the insurance company to use money from your cash value to pay premiums.
Attained Age: The actual age you have reached at any given time.
Beneficiary: The person you designate to be paid a death benefit when you die. A policy may have one or more beneficiaries.
Cash Value: The "savings" portion of a life policy. When your premium payments are more than the cost of insurance, the excess goes into a cash value account and draws interest.
Contestable Period: In Ohio, an insurance company can challenge a life insurance policy during the first two years after issue. During the contestable period, the insurance company can cancel the policy (if you are still living) or refuse to pay a death
benefit because it discovers your answers on the original application were misleading or false.
Conversion: Changing a term life policy to some other form. This can be done only when the policy is described as convertible.
Credit Life: A policy intended to pay off a debt (loan for car, furniture, appliances, etc.) if you die.
Death Benefit: The money that a life insurance policy promises to pay your beneficiary when you die.
Decreasing Term: A term life policy whose death benefit goes down each year. Credit life insurance is a form of decreasing term; because your loan balance is lower each year, you need less insurance to cover it.
Dividends: When a company collects more money from policyholders than is needed to cover the cost of insurance, profit and other expenses, the company may return some of the money as a dividend. Dividends are paid only if you have a "participating" policy. You generally can choose to receive the dividend as a cash payment, apply it to your premium payments, buy more insurance, or add it to the policy's cash value. Dividends are like a bonus. There is no guarantee that the company will pay dividends.
Endowment: A cash value policy that sets a specific time at which the cash value will equal the death benefit. If you buy a $10,000, 20-year endowment policy, you will immediately be insured for $10,000. If you are still living at the end of 20 years, you will receive $10,000 in cash.
Face Amount: The sum a policy promises to pay when the insured person dies, or at the maturity of the contract.
First to Die: Provision in a policy that insures both husband and wife. When the first spouse dies, the survivor collects the full death benefit.
Guaranteed Rate: The only interest amount that the insurance company promises to pay on any cash value in the policy. The guaranteed rate is generally much lower than nonguaranteed projections the company may make in its illustrations.
Illustration: An insurance company's explanation of how the life insurance policy will work. An illustration projects the policy into the future, showing each year's premium payment and death benefit as well as any guaranteed interest payments and the
company's description of additional benefits that might be paid if the company does well.
Insurable Interest: In order to be the owner and beneficiary of a life insurance policy, there must be some relationship to the insured person. This protects you from the stranger who might have murder in mind when he takes out a million dollar policy on your life. Family members have insurable interests in each other, and employers have insurable interests in their employees.
Irrevocable Assignment: Permanently signing over your policy rights to someone else. Irrevocable means you cannot take it back.
Loan: If your policy has accumulated cash value, you may borrow part of it. Interest rates are generally better than bank rates. The amount you borrowed will be deducted from your death benefit until you have repaid it. If your loan and accumulated interest add up to more than the cash value, the policy will lapse.
Morbidity: The frequency of sickness and accidents among a group of people.
Mortality Charge: The cost of insuring you at your current age.
Mortality Tables: Mortality tables are statistics that show how long people are expected to live under various situations (women longer than men, smokers shorter than non-smokers, etc.). Companies use mortality tables to calculate the cost of
insuring you at any specific age.
Nonforfeiture: If you cancel a cash value policy after several years, the company is required to refund part of the cash value. Many options are also available to you other than a lump sum payment.
Non-Participating (Non-Par): A policy that is not eligible for dividends.
Paid-up Additions: Additional insurance purchased with policy dividends.
Paid-Up: A policy on which all premium payments have been made. Although you are still alive, you do not have to make any more payments, and your beneficiary is assured a full death benefit.
Participating Policy: A policy that has the possibility of paying dividends. Always remember that dividends are never guaranteed.
Policy Owner: The person who contracts with an insurance company for a life insurance policy. The owner of the policy has the right to designate beneficiaries. Ordinarily you are the owner of the policy on your own life, but you might also be the
owner of policies on the lives of your children. You can sell the ownership to a stranger, who could then make himself the beneficiary of your policy (see Viatical Settlement).
Preferred Rate: The rate the company charges people who have the lowest risks. These people are called preferred risks.
Pre-need Contract: A contract with a funeral home that makes it possible to pay your funeral expenses in advance. The terms of pre-need contracts are regulated by Ohio law.
Reinstatement Period: Restoration of a policy that has lapsed due to non-payment of premium after the grace period has ended. The reinstatement period in life insurance is 3 years from the premium due date. You must pay all past due premiums plus interest and prove insurability to have a policy reinstated.
Renewable Term: A term life policy that guarantees you the right to renew at the end of the term.
Replacement: An insurance agent "replaces" your policy when he sells you a policy to take the place of one you already have. Ohio law requires you to sign replacement forms whenever money from one policy is used to buy or fund another policy. If the
new policy is with a different company, the agent must notify your old company. The old company then has a chance to persuade you not to switch (called "conservation"). The free look period when replacing a life policy is 20 days.
Risk: The likelihood that you will die while insured. Young, healthy children are the lowest risks. Old folks and skydivers are very high risks. life insurance companies chargea premium appropriate to the risk.
Risk Factor: Things about you that affect your risk. Some examples: older age, smoking, hazardous occupation, family history of heart disease, etc.
Settlement Option: How a beneficiary receives payment of the death benefit. The company may pay a lump sum or set up a money market account in the beneficiary's name and give the beneficiary the choice of leaving the money in the account or
withdrawing part or all of it.
Suicide Clause: A life insurance policy will not pay a death benefit if you commit suicide within the first two years after you buy the policy.
Surrender Charge: If you surrender an annuity or life policy prematurely, the company may deduct a fee from the amount it owes you.
Term Life: The simplest form of life insurance, it generally offers no cash value feature. You pay a premium and the company promises to pay your beneficiary if you die. The policy lasts for a specific length of time or "term," such as 1, 5, 10 or more years, or to a designated age such as 65 or 100. If you are living at the end of the term, the policy expires unless the company agrees to renew it. Renewal premiums are based on your attained age. Sometimes called temporary insurance.
Universal Life: A flexible-premium life insurance contract which accumulates values and pays a death benefit. You choose the policy's premium and face amount, and you can adjust these as long as the policy is in effect. It is possible that the cash value will earn more than the guaranteed minimum interest rate. It is also possible that the cash value will grow faster than is needed to cover the cost of insurance.
Variable Life: A type of whole life insurance in which the face amount and cash value rely on the investment performance of a special fund. Reserves are placed in investment accounts that are separate from the company's general account. Most
policies guarantee a minimum face amount, but a cash value minimum is rarely guaranteed.
Viatical Settlement: An agreement to sell the ownership of your life insurance policy to another, unrelated person, who becomes both the owner and beneficiary of the policy.
Waiver of Premium: A provision that suspends your obligation to pay premiums when you are disabled or you meet some other policy requirement. This is a common feature in life insurance polices.
Whole Life: Life insurance with a savings feature. Premiums generally are the same (level) every year. When you are young, your premiums are more than the cost of insuring your life at that time. The excess amount accumulates and resembles a
savings account, called cash value. This excess is used by the company to insure you later in life, when your level premium is no longer enough to cover you.