Life Insurance Definitions

The following definitions will help you understand life insurance and the industry lingo associated with this asset and income protection product. If you have specific questions, please contact Life Insurance Advisors.

Beneficiary

The person(s) named in the policy to receive the life insurance proceeds upon the death of the insured.

Cash (Surrender) Value

The amount that is available in cash for loans and that may be available for withdrawals. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.

Convertible Term Insurance

Term insurance which can be exchanged (converted), at the option of the policy owner and without evidence of insurability, for a permanent insurance policy.

Dividend

A return of part of the premium on participating insurance that is based on the insurer's investment, mortality, and expense experience. Dividends are not guaranteed.

Face Amount

The amount stated on the face of the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.

Insurability

Acceptability to the company of an applicant for insurance.

Insured or Insured Life

The person on whose life the policy is issued.

Level Premium (Life Insurance)

Life insurance for which the premium remains the same from year to year. The premium is normally more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The payments in the early years, together with the interest that is to be earned, serves to balance out the underpayment of the later years.

Loan (Policy Loan)

A loan made by a life insurance company from its general funds to a policy owner on the security of the cash value of a policy.

Paid-up Insurance

Insurance that will remain in force with no need to pay additional premiums.

Participating Policy

A life insurance policy that is eligible for the payment of dividends by the insurer (see also Dividend.)

Permanent (Life Insurance)

Any form of life insurance except term; generally insurance that builds up a cash value, such as whole life.

Policy owner

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.

Premiums

Payments to the insurance company to buy a policy and to keep it in force.

Renewable Term Insurance

Term insurance which can be renewed at the end of the term, at the option of the Policy owner and without evidence of insurability, for a limited number of successive terms. The rates generally increase at each renewal as the age of the insured increases.

Return of Premium - ROP

A term policy where the premiums paid into the policy are returned at the end of the term length.  An example would be a 10 year term policy that costs $500 per year. At the end of 10 years, the insured would receive a refund of $5,000 from the insurance company.

Term Life Insurance

Life insurance that does not build up cash value and where the premium normally increases as the insured gets older.

Universal Life Insurance

A flexible premium life insurance policy under which the Policy owner may change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the amount or timing of premium payments. Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at rates which may change from time to time.

Whole Life Insurance

A basic type of permanent life insurance which can provide lifetime protection at a level premium. Premiums must generally be paid for as long as the policy is in force.

Approval - After you have submitted all requirements to the life insurance company for underwriting, that information will be evaluated and if accepted, you will be approved for coverage.

Decline - If the life insurance company evaluates your information and considers you to be a risk that is not acceptable, they will decline you for life insurance.

Postpone - If you have had a recent health issue, or enough time has not passed since treatment for a health condition, the life insurance company may postpone your application for a period of time. 

Table rating - If you suffer from a health issue, the insurance company may charge you more for your life insurance.  A table rating is a percentage increase above the standard rate.  Each table is typically equal to a 25% increase in price.  As an example, if you received a table 2 offer from a company and the standard rate is $1000, a table 2 rating would add an additional 50% or $500 to the cost of the policy.  A table rating may last for 20 years and then drop off, OR the company may specify how long the rating will last.

Flat Extra - A flat extra is an additional cost added to the price of a policy.  Typically a flat extra is used for people who have had some form of cancer.  A flat extra will last for a certain number of years and drop off.  Flat extras are expressed as a cost per thousand dollars of coverage.  As an example, flat extras may be $2.50 - $15.00 per thousand.  As an example, if someone bought a $100,000 policy and was given a flat extra of $2.50/1000.  $100,000/1000 = 100 x $2.50 = $250 additional cost to the policy.

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