Life Insurance

Beneficiary

A person or interest to which a policy's proceeds will be paid upon the death of the insured.

Per Stirpes

Distributes the benefits of a beneficiary who died before the insured to that beneficiary's heirs.

Family Term Rider

Incorporates the spouse term rider along with the children's term rider in a single rider.

Collateral Assignment

Involves a transfer of partial right to another person. It is partial and temporary assignment of some of the policy rights.

Incontestability

Prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact.

Other Insured Rider

Provides coverage for one or more family members other than the insured.

Owner's Rights

-Naming & changing the beneficiary -receiving the policy's living benefits -selecting a benefit payment options -assigning the policy

Classes

A class of beneficiary is using a designation such as "my children." When naming beneficiaries it is most prudent to be specific by naming each individual and by designating the exact amount to be given for that individual.

Recording or Filing Method

A method of changing the beneficiary, where the policy owner completes a form with the change and submits it to the insurance company.

Endorsement Method

A method of changing the beneficiary, where the policy owner is required to request the change with the contract to the home office of the insurer.

Effect of Nonpayment

A policy may be terminated because of nonpayment of premiums. This is known as a lapsed policy.

Dividends

A return of excess premiums, and for that reason they are not taxable to the policy owner.

Back-End Load

A sales charge applied at the time of a sale, transfer or withdrawal from an annuity, a life insurance policy, or a security.

Fixed-Period Installments (Settlement Options)

A specified period of years is selected, and equal installments are paid to the recipient.

Automatic Premium Loans

A type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Cost of Living

Addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured.

Reinstatement

Allows a lapsed policy to be put back in force if reinstated within a specified maximum time limit after the policy has lapsed.

Children's Term Rider

Allows children of the insured to be added to coverage for a limited period of time for a specified amount.

Guaranteed Insurability

Allows the insured to purchase additional coverage at specified future dates or events, without evidence of insurability, for an additional premium.

Change of Plan

Allows the policy owner to change the policy form, usually at a higher premium rate.

Conversion

Allows the policy owner to elect to have a new policy issued prior to the expiration of an existing policy.

Flexible Premium

Allows the policy owner to increase or decrease the premium during the policy period.

Spouse Rider

Allows the spouse to be added to coverage for a limited period of time and for a specified amount.

Nonforfeiture Options

Because permanent life insurance policies have cash values, certain guarantees are built into the policy that cannot be forfeited by the policy owner.

Per Capita

Evenly distributes benefits among the living named beneficiaries.

Life Income Join & Survivor (Settlement Options)

Guarantees an income for two or more recipients for as long as they live. Most contracts provide that the surviving recipient will receive a reduced payment after the first recipient dies.

Primary Beneficiary

Has first claim to the policy proceeds following the death of the insured.

Contingent Beneficiary

Has second claim in the event that the primary beneficiary dies before the insured.

Effect on Death Benefit

If an insured withdraws a portion of the face amount by the use of accelerated benefits riders, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.

Estates

If none of the beneficiaries is alive at the time of the insured's death, or if no beneficiary has been named, the insured's estate will automatically receive the proceeds of a life insurance policy.

Misstatement of Age or Gender

If the applicant has misstated his or her age or gender on the application, in the event of a claim, the insurer is allowed to adjust the benefits to an amount that the premium at the correct age or gender would have purchased.

Common Disaster Clause

If the insured and the primary beneficiary die at approximately the same time from a common accident, the proceeds will be paid to either the contingent beneficiary or to the insured's estate.

Hazardous Occupations or Hobbies:

If the insured is engaged in a hazardous occupation or participates in hazardous hobbies, death that results from the hazardous occupation or hobby may be excluded from coverage.

Return of Premium Rider

Implemented by using increasing term insurance. It provides that at death prior to a given age, not only is the original face amount payable, but an amount equal to all premium previously paid is also payable to the beneficiary.

Mortality Tables

Indicates the number of individuals within a specified group of individuals starting at a certain age, who are expected to be alive at a succeeding age.

Absolute Assignment

Involves transferring all rights of ownership to another person or entity. This is a permanent transfer of all policy rights.

Irrevocable

May not be changed without the written consent of the beneficiary.

War or Military Service

Most life insurance policies today do not exclude military service. However, there are two different types of exclusions that may be used to limit the death benefit if the insured dies as a result of war or while serving in the military. The Status Clause excludes causes of death while the insured is on active duty in the military. Results Clause only excludes the death benefit if the insured is killed as a result of an act of war.

Fixed-Amount Installments (Settlement Options)

Pays a fixed, specified amount in installments until the proceeds are exhausted.

Waiver of Monthly Deduction

Pays all monthly deductions while the insured is disabled, after a 6-month waiting period.

Accidental Death Rider

Pays some multiple of the face amount if death is result of an accident was defined in the policy.

Accidental Death & Dismemberment Rider

Pays the principal for accidental death, and pays a percentage of that amount, or a capital sum, for accidental dismemberment. The accidental death portion is the same as that already discussed with the accidental death rider.

Payor Benefit

Primarily used with juvenile policies otherwise, it functions like the waiver of premium rider.

Suicide Exclusion

Protects the insurers from individuals who purchase life insurance with the intention of committing suicide.

Long-Term Care (LTC)

Provides for the payment of part of the death benefit in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home.

Living Needs Rider

Provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years.

Life Income (Settlement Options)

Provides the recipient with an income that he or she cannot outlive. Installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death.

Front-End Load

Refers to commissions or sales charges that apply at the time of the initial purchase of an insurance policy or annuity.

Excess Interest

Refers to the difference between the interest rate guaranteed by the insurance contract and the actual interest rate paid on the proceeds by the insurance company.

Insuring Clause

Sets forth the basic agreement between the insurer and the insured. It states the insurer's promise to pay the death benefit upon the insured's death.

Interest

Since premiums are paid before claims are incurred, insurance companies invest the premiums in an effort to earn interest on these funds.

Entire Contract

Stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract.

Paid-Up Additions (Dividend Option)

The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

Accumulation at Interest (Dividend Option)

The insurance company keeps the dividend in an account where it accumulates interest. The policy owner is allowed to withdraw the dividends at any time.

Interest Only (Settlement Options)

The insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals. The insurer usually guarantees certain rate of interest and will often pay interest in excess of the guaranteed rate.

One-Year Term (Dividend Option)

The insurance company uses the dividend to purchase additional insurance in the form of one-year term insurance that increases the overall policy death benefit.

Expense

The insurer collects the mortality charge to pay the policy face amount if an insured dies. Mortality-Interest=NetPremium

Cash (Dividend Option)

The insurer simply sends the policy owner a check for the amount of the dividend as it is declared, usually annually.

Reduction of Premium (Dividend Option)

The insurer uses the dividend to reduce the next year's premium.

Extended Term

The insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

Premium Mode

The manner or frequency that the policy owner pays the policy premium.

Settlement Options

The methods used to pay the death benefits to a beneficiary upon the insured's death, or to pay the endowment benefit if the insured lives to the endowment date.

Individuals

The owner of a life insurance policy may name any individual as a beneficiary for the policy proceeds. The owner may name more than one individual, in which case the individual beneficiaries will split the benefit by the percentage specified in the policy.

Grace Period

The period of time after the premium due date that the policy owner has to pay the premium before the policy lapses.

Policy Loans

The policy owner is entitled to borrow an amount equal to the available cash value. Any outstanding loans and accrued interest, will be deducted from the policy proceeds upon the insured's death.

Cash Value

The policy owner may simply surrender the policy for the current cash value at a time when coverage is no longer needed or affordable. A surrender charge occurs when a life policy or annuity is surrendered for its cash value.

Revocable

The policy owner, without the consent or knowledge of the beneficiary, may change a revocable designation at any time.

Level Premium

The premium remains the same throughout the duration of the contract.

Mortality

The ratio of the number of deaths in a specific population over a certain amount of time verse the number of living people in that population.

Life Income w/ Period Certain (Settlement Options)

The recipient is provided with payments guaranteed for the lifetime income of the recipient, and there is also a specified period that is guaranteed.

Exclusions

The types of risks the policy will not cover.

Free Look

This provision allows the policy owner 10 days form receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.

Trusts

Trusts are commonly established for minors, or to create a scholarship fund. They can also be used for estate planning purposes.

Reduced Paid-Up Insurance

Under this option, the policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy.

Cash (lump-sum) Payment (Settlement Options)

Upon the death of the insured, or at the point of endowment, the contract is designed to pay the proceeds in cash, called a lump sum.

Paid-Up Insurance (Dividend Option)

Usually, the insurer first accumulates the dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early.

Waiver of Premium

Waives the premium for the policy if the insured becomes totally disabled. Coverage remains in force until the insured is able to return to work.

Policy Riders

Written modifications attached to a policy that provide benefits not found in the original policy.

Aviation:

most life insurance will cover an insured as a fare-paying passenger or a pilot on a regularly scheduled airline, but will exclude coverage for noncommercial pilots, or require an additional premium for coverage.