When it comes to choosing a life insurance policy, you have several choices. And like many industries, the world of insurance uses its own unique terminology to describe its products. For the rest of the world—and even for some insurance pros—these terms can be confusing. So, no matter which type of life insurance might be right for you, this handy glossary will help you understand some of the basics of life insurance.
And if this doesn’t help you understand everything you need to about life insurance (and don’t feel bad—it means you’re normal), just give us a call. The experts at Roper Insurance are happy to answer your questions and explain what you need to know to make an educated decision about your insurance—in plain English. Give us a call today at 303-721-1145 or message us through the handy Contact Us button at the top of every one of our web pages.
Life Insurance Terms That Relate to People
- AGENT– A person licensed by the state who may sell and negotiate insurance contracts, and provides service to the policyholder on behalf of the insurance company. An agent can be an independent agent who represents at least two insurance companies or can be a direct writer who works for one insurance company only.
- BENEFICIARY – The person named in a life insurance policy who receives the proceeds of the policy at the death of the person insured. The insured person may name anyone as a beneficiary.
- CONTINGENT BENEFICIARY – The person who receives the benefit payout of a life insurance policy following the policy holder’s death if the primary beneficiary dies before the policy holder.
- INSURED LIFE – The person on whose life a policy is issued.
- IRREVOCABLE BENEFICIARY – A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s lifetime because the policy owner can only change the beneficiary designation only after obtaining the beneficiary’s consent.
- POLICY OWNER OR POLICY HOLDER– The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.
Types of Life Insurance Policies
- CONVERTIBLE TERM INSURANCE POLICY – A term life insurance policy that gives the policy owner the right to convert the policy to a permanent plan of insurance.
- PERMANENT LIFE INSURANCE – Life insurance that provides coverage throughout the insured’s lifetime and also provides a savings element.
- RENEWABLE TERM LIFE INSURANCE – A term life insurance policy that can be renewed at the end of the policy term.
- TERM LIFE INSURANCE – A life insurance policy which provides a stated benefit upon the policy holder’s death, provided that the death occurs within a certain specified time period. Policy does not build up a cash value.
- UNIVERSAL LIFE INSURANCE – A type of flexible permanent life insurance offering both term life insurance as well as a savings element, which is invested to provide a cash value buildup. The death benefit, savings element and premiums can be reviewed and altered as a policyholder’s circumstances change.
- WHOLE LIFE INSURANCE – A basic type of permanent life insurance. It provides coverage that lasts a lifetime and also builds up a cash value that you can borrow against, withdraw or use to pay future premiums.
- FACE AMOUNT– The amount stated on the policy that will be paid in the event of death or at the maturity of the policy. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.
- INSURABLE INTEREST- For persons related by blood, a substantial interest established through love and affection, and for all other persons, a lawful and substantial economic interest in having the life of the insured continue. An insurable interest is required when purchasing life insurance on another person. In other words, there has to be some kind of relationship in order to buy a life insurance policy on another person.
- POLICY PROCEEDS- The amount actually paid on a life insurance policy at death or when the policy owner receives payment at surrender or maturity.
- PREMIUMS – Amount paid to the insurance company to buy an insurance policy and keep it valid. Depending on the terms of the policy, the premium may be paid in one payment or a series of regular payments, e.g., annually, semi-annually, quarterly or monthly. The premium charged reflects the expectation of loss, expenses and profit contingencies.
- RATING– The basis for an additional charge to the standard insurance premium because the person insured is a greater than normal risk usually resulting from impaired health or a hazardous occupation.
Other Important Terms to Know
- APPLICATION– A statement of information made by a person applying for life insurance. It helps the life insurance company assess the acceptability of risk. Statement made in the application are used to decide on an applicant’s underwriting classification and premium rates
- POLICY– The printed legal document stating the terms of insurance contract that is issued to the policy owner by the insurance company.
- RIDER– An addition or endorsement to an insurance policy that modifies clauses and provisions of the policy, including or excluding coverage.
- STANDARD RISK– The classification of a person applying for a life insurance policy who fits the physical, occupational and other standards on which the normal premium rates are based.
- SUBSTANDARD RISK– The classification of a person applying for a life insurance policy who does not meet the requirements set for the standard risk. An additional premium is charged on substandard risks to provide for the probability that such a person will have a shorter life span than a standard risk.