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Life Insurance Lingo
Beneficiary is the individual(s) designated to receive the death benefit in the event of the insured person's death.
Cash (Surrender) Value is the money that accumulates in your Life Insurance policy while the policy is in force. A portion of the premium you pay for the coverage goes in reserve and accumulates on a tax-deferred basis. You can borrow or withdraw the money to do away with your financial difficulties at any time you want. The feature of building cash value is offered only under Permanent Life Insurance policies.
Convertible Term Insurance is a type of Term Life Insurance which, in accordance with the insured's wishes, can be converted into a Whole Life Insurance policy or a Universal Life Insurance policy without evidence of insurability.
Death Benefit is the sum paid to the beneficiary upon the insured's death irrespective of the cause of death.
Dividend is an additional monetary value you can get through a Participating Whole Life Insurance policy that is non-guaranteed and predetermined by the insurance company's favorable operating experience.
Evidence of Insurability is a proof of a person's condition under which an insurance company grants an insurance policy.
Face Value (also referred to as Face Amount) is the amount indicated in a Life Insurance policy which will be paid out to the beneficiaries in the event of the insured's death. The Face Value does not include any of the additional payments acquired under special provisions in the policy.
Insured is the person whose life is subject to Life Insurance coverage.
Lapse is the termination of the policy due to non-payment of the regular premiums or, with a permanent Life Insurance plan, due to the depletion of the cash value below the fixed limit.
Level Term Insurance is a type of Term Life Insurance under which the premium remains the same from year to year.
Loan (Policy Loan) is a loan that the policy holder takes against the cash value of a policy. The option of taking a loan is a specific feature of policies allowing building up cash value.
Modified Endowment Contract (MEC) is a contract your Variable Universal Life Insurance turns into provided the predetermined maximum amount of the premium for a given death benefit under a VUL policy is exceeded. With MEC you lose the tax advantages intrinsic to VUL policies and any withdrawals from the cash value are taxable as ordinary income.
Owner of a Life Insurance Policy is the insured person or an individual, a company or a trust with an insurable interest in the insured person.
Participating Policy is a Life Insurance policy that offers a non-guaranteed cash element made of dividends which the insurance company shares with its policyholders.
Permanent Life Insurance is a form of Life Insurance that is opposed to Term Life Insurance types due to its feature of accumulating cash value. The main Permanent Life Insurance types are Whole Life, Universal Life, Variable Life Insurance and Variable Universal Life Insurance.
Policy Fee is an administrative fee which is incorporated in your premium payment and is regularly subtracted from it to cover the company's expenses toward your policy.
Policyholder is the person who has purchased a Life Insurance policy and pays the premiums to keep it in effect. It is usually the insured, but in some cases it can also be a relative of the insured or a partner.
Premium is a regular payment to an insurance company needed to purchase a Life Insurance policy and to keep it in force.
Prospectus is a special document providing details about the coverage and the investment options and limitations to people who are interested in purchasing Variable Life Insurance or Variable Universal Life Insurance and investing in it.
Renewable Term Insurance is a type of Term Life Insurance which can be renewed at the end of its term.
Return of Premium Term Insurance (ROP Insurance) is a type of Term Life Insurance which allows the policyholder to receive a guaranteed return of premiums paid if you keep the policy for the term period.
Rider is a provision that can be added to your policy that limits or expands the policy's coverage (for example, coverage of family members or coverage of serious accidents). Riders can increase the premium payments.
Separate Accounts (also known as sub-accounts) are various investment funds (e.g. stocks, bonds, equity funds, money market funds and bond funds) within a company's portfolio you can make use of under Variable Life Insurance and Variable Universal life Insurance contracts.
Term Life Insurance is a Life Insurance coverage which is provided for a specified period of time without building up cash value and with increasing premiums. Terms can be for 1 year, 5, 10, 15, 20, 25 and even 30 years. The main types of Term Life Insurance are Renewable / Non-Renewable Term Insurance, Convertible / Non-Convertible, Increasing / Decreasing Term Insurance, Level Term Insurance and Return of Premium Term Insurance.
Universal Life Insurance (UL) is a type of Permanent Life Insurance with a feature that allows designing your own premiums. This type of Life Insurance procures lifelong protection.
Variable Life Insurance (VL) is a permanent Life Insurance plan that provides flexible premiums and death benefits dependent on the value of the separate accounts from the company's investment portfolio underlying the policy.
Variable Universal Life Insurance (VUL) is a permanent type of Life Insurance combining the essential features of Variable Life Insurance and Universal Life Insurance, thus allowing the policyholder to allocate premiums to different investment options, to build up cash value and to determine when and how much you invest in your policy.
Waiver of Premium is an additional provision (sometimes also called a rider) in most Life Insurance policies which allows to stop paying premiums after the insured person has been disabled for a given period of time (usually six months) due to an illness or an injury. In this case the six months premiums paid together with any future premium payments are waived until the insured resumes work.
Whole Life Insurance (WL) is a basic type of Permanent Life Insurance which can provide life-long protection for a level premium if it is paid throughout the whole term the policy is in force.