Life Insurance

Life Insurance Glossary

Accelerated death benefits - A insurance policy with an accelerated death benefits provision will pay - under certain conditions - all or part of the policy death benefits while the policyholder is still alive. These conditions include proof that the policyholder is terminally ill with a life expectancy of less than 12 months, has a specified life-threatening disease or is in a long-term care facility such as a nursing home. For group term life policies or certificates, the amount of accelerated benefit is limited by law to the greatest of $25,000 or 50 percent of the death benefit. By accepting an accelerated benefit payment, a person could be ruled ineligible for Medicaid or other government benefits. The proceeds may also be taxable.

Accident-only policies - Policies that pay only in cases arising from an accident or injury.

Accidental death benefits - If a life insurance policy includes an accidental death benefit, the cause of death will be examined to determine whether the insured´s death meets the policy´s definition of accidental.

Annuitant - A person who receives the payments from an annuity during his or her lifetime.

Annuity - A contract in which the buyer deposits money with a life insurance company for investment. The contract provides for specific payments to be made at regular intervals for a fixed period or for life.

Annuity certain - An annuity that provides a benefit amount payable for a specified period of time regardless of whether the annuitant lives or dies.

Annuity period - The time span between the benefit payments made under an annuity contract.

Cash surrender option - Nonforfeiture option that specifies the policy owner can cancel the coverage and receive the entire net cash value in a lump sum.

Cash value - The amount of money the life insurance policy owner will receive as a refund if the policy owner cancels the coverage and returns the policy to the company. Also called "cash surrender value."

Churning - This can occur when an agent persuades a consumer to borrow against an existing life insurance policy to pay the premium on a new one.

Company profile - A summary of information about an insurance company, including its license status, financial data, complaint history, and a history of regulatory action.

Complaint - A written communication primarily expressing a grievance against an insurance company or agent.

Complaint history - Information collected or maintained by the Texas Department of Insurance (TDI) relating to the number of complaints received against a particular insurer, agent, or premium finance company and the disposition of the complaints.

Conditional receipt - A premium receipt given to an applicant that makes a life and health insurance policy effective only if or when a specified condition is met.

Contestable period - A period of up to two years during which a life insurance company may deny payment of a claim because of suicide or a material misrepresentation on an application.

Contingent beneficiary - Another party or parties who will receive the life insurance proceeds if the primary beneficiary should predecease the person whose life is insured.

Contract - In most cases, an insurance policy. A policy is considered to be a contract between the insurance company and the policyholder.

Conversion privilege - The right to change (convert) insurance coverage from one type of policy to another. For example, the right to change from an individual term insurance policy to an individual whole life insurance policy.

Death benefit - Amount paid to the beneficiary upon the death of the insured.

Deferred annuity - An annuity under which the annuity payment period is scheduled to begin at some future date.

Effective date - The date on which an insurance policy becomes effective.

Expiration date - The date on which an insurance policy expires.

Face value - The initial amount of death benefit provided by the policy as shown on the face page of the contract. The actual death benefit may be higher or lower depending on the options selected, outstanding policy loans, or premium owed.

Free examination period - Also known as "10-day free look" or "free look," it is the time period after a life insurance policy or an annuity is delivered during which the policy owner may review it and return it to the company for a full refund of the initial premium. Variable life policies are required to include a "free-look" provision. For other coverage, it is at the company´s option.

Grace period(s) - The time - usually 31 days - during which a policy remains in force after the premium is due but not paid. The policy lapses as of the day the premium was originally due unless the premium is paid before the end of the 31 days or the insured dies.

Group life insurance - This type of life insurance provides coverage to a group of people under one contract. Most group contracts are sold to businesses that want to provide life insurance for their employees. Group life insurance can also be sold to associations to cover their members and to lending institutions to cover the amounts of their debtor loans. Most group policies are for term insurance. Generally, the business will be issued a master policy and each person in the group will receive a certificate of insurance.

Home service life - A method of selling and servicing insurance, mostly life and health insurance, and does not identify the type or relative cost of the product that is sold. Some companies that market on a home service basis sell what is known as "industrial life insurance." These are most often low death benefit policies with face amounts that may vary from $1,000 to $5,000 and which accumulate cash values at a very low rate. They are intended primarily to cover the expenses of a last illness and burial. The relative cost of industrial life insurance is extremely high compared to some other cash value policies and term life insurance policies.

Incontestability - A provision that places a time limit - up to two years - on a life insurance company´s right to deny payment of a claim because of suicide or a material misrepresentation on your application.

Indexed life insurance - A whole life plan of insurance that provides for the face amount of the policy and, correspondingly, the premium rate, to automatically increase every year based on an increase in the Consumer Price Index (CPI) or another index as defined in the policy.

Insurable interest - Any financial interest a person has in the property or person insured. In life insurance, a person´s or party´s interest - financial or emotional - in the continuing life of the insured.

Insured - The person or organization covered by an insurance policy.

Insurer - The insurance company.

Interpleader - This is a procedure when conflicting claims are made on a life insurance policy by two or more people. Using this procedure the insurance company pays the policy proceeds to a court, stating the company cannot determine the correct party to whom the proceeds should be paid.

Irrevocable beneficiary - A named beneficiary whose rights to life insurance policy proceeds are vested and whose rights cannot be canceled by the policy owner unless the beneficiary consents.

Lapse - The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.

Mortality charge - The cost of the insurance protection element of a universal life policy. This cost is based on the net amount at risk under the policy, the insured´s risk classification at the time of policy purchase, and the insured´s current age.

Mortality expenses - The cost of the insurance protection based upon actuarial tables which are based upon the incidence of death, by age, among given groups of people. This cost is based on the amount at risk under the policy, the insured´s risk classification at the time of policy purchase, and the insured´s current age.

Nonparticipating policy - A life insurance policy that does not grant the policy owner the right to policy dividends.

Paid-up - This event occurs when a life insurance policy will not require any further premiums to keep the coverage in force.

Policy - The contract issued by the insurance company to the insured.

Policy loan - An advance made by a life insurance company to a policy owner. The advance is secured by the cash value of the policy.

Policy owner - The person or party who owns an individual insurance policy. This person may be the insured, the beneficiary, or another person. The policy owner usually is the one who pays the premium and is the only person who may make changes to a policy.

Policy period - The period a policy is in force, from the beginning or effective date to the expiration date.

Premium - The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.

Premium load - An amount deducted from each life insurance premium payment, which reduces the amount credited to the policy.

Single-premium whole life policy - A type of limited-payment policy that requires only one premium payment.

Suicide clause - Life insurance policy wording which specifies that the proceeds of the policy will not be paid if the insured takes his or her own life within a specified period of time after the policy´s date of issue.

Variable life insurance - A type of whole life policy in which the death benefit and the cash value fluctuate according to the investment performance of a separate account fund that the policyholder selects. Because the investment account is regulated by the Securities and Exchange Commission, the policyholder must be presented with a prospectus before they purchase a variable life policy.

Viatical settlement agreements - Viatical settlements involve the sale of an existing life insurance policy by a viator (person with a life threatening or terminal illness) to a viatical settlement company in return for a cash payment that is a percentage of the policy´s death benefit.

Whole life insurance - Whole life insurance policies are one type of cash value insurance. Whole life policies offer protection through a lifetime - that is, for a person´s "whole life." From the day a person buys the policy, they pay a scheduled premium. The scheduled premium may be level or may increase after a fixed time period, but it will not change from the amount(s) shown in the policy schedule. It is important to look at the policy schedule to understand what the premium payments will be and that they are affordable over time. This premium is based on age at the time of purchase. Initially, it will be higher than the premium paid for a term policy, but they are likely to decrease over time if the policy is kept for a long time. Part of each premium payment will go to cash value growth, part for the death benefit and part for expenses (such as commissions and administrative costs). There is no need to renew whole life policies. As long as the premium is paid when due, coverage will continue in force.