Life Insurance Definitions
You will find life insurance definitions below that are commonly used in the life insurance industry. Life insurance FAQs are here to help you as the consumer.
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The person(s) named in the life insurance policy to receive the life insurance proceeds upon the death of the insured.
You will see on your life insurance application that there is typically space for both primary and secondary/contingent beneficiaries.
The primary beneficiaries receive the death benefit proceeds if you die. The contingent beneficiaries receive the death benefit proceeds only if the primary beneficiaries are deceased before the insured.
Build Cutoff Limits
Each life insurance company has its own set of life insurance underwriting guidelines, including height/weight charts, BMI index, and build cutoff limits by life insurance rate class.
Life insurance companies have different build cutoff limits depending on the life insurance rate class you are applying for and approved at.
Burial Life Insurance
Some life insurance companies advertise a certain type of life insurance policy where if you die, the burial life insurance policy will pay for your funeral. Be careful as many times you can buy a traditional life insurance policy with a greater death benefit for less money than a burial life insurance policy.
Cash Surrender Value
cash surrender value is the amount of cash available for loans and that may be available for withdrawals from your life insurance policy.
Term life insurance policies do not have a cash surrender value.
Accessing Cash Surrender Value may reduce the death benefit of your cash value life insurance policy and may increase the risk of lapse of your life insurance policy. Cash surrender value only applies to permanent life insurance, not term life insurance policies.
A Child Rider is an option available on many term life insurance policies that allows you to buy a small amount of life insurance on the life of your child without putting your child through life insurance underwriting. Child riders are also available on permanent life insurance policies.
Typically when child riders are available on life insurance policies, the rider may allow up to $10,000 of life insurance coverage per child at an annual cost of $60 – $100.
Interesting to note is that with most child riders, the $60-$100 is the total cost for all children.. If you have one child the rider costs $60- $100…if you have 4 children, the rider still only costs $60-$100.
Convertible Term Life Insurance
Term life insurance which can be exchanged or converted to permanent life insurance at the option of the policy owner and without evidence of insurability for the new conversion life insurance policy.
When considering term life insurance it is important to ask what the conversion privilege is for your term life insurance policy as life insurance companies conversion privileges vary.
If available with your term life insurance policy, look for a conversion privilege that lasts as long as the term length of your life insurance policy.
For example, a 20 year term life insurance policy may offer a 20 year conversion privilege while another 20 year term life insurance policy may only offer a 10 year conversion privilege.
While most people will never convert their term life insurance policy, it is a good option to have and typically does not cost extra.
Do you need help converting your term life insurance policy? We will help you with the conversion of your term life insurance policy.
A return of part of the life insurance premium you paid on a participating whole life insurance policy that is based on the insurer’s investment, mortality, and expense experience.
Dividends are not guaranteed by the life insurance companies and are subject to change. Term life insurance policies do not offer dividends.
The amount stated on the face of the life insurance policy that will be paid in case of death. This is also known as the death benefit.
The face amount does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends where policy dividends may increase the death benefit of the life insurance policy.
Guaranteed Issue Life Insurance
Guaranteed issue life insurance is a type of life insurance policy that requires little to no medical life insurance underwriting. It is important to note that in many life insurance cases, a fully underwritten life insurance policy may be available at a lower price than guaranteed issue life insurance even if you think that you are uninsurable due to a health problem!
Guaranteed issue life insurance policies may be the best option for people with health impairments that have been declined for life insurance and are truly uninsurable. We’ll work with you to find the best life insurance option for you.
High Risk Life Insurance
High risk life insurance is also known as impaired risk life insurance. If you have a health issue or participate in risky occupations or activities, a high risk life insurance company may be your best bet. Term life insurance, universal life insurance and whole life insurance policies are available.
We help many individuals who have had health problems such as prostate problems, prostate cancer, diabetes, heart disease and more obtain term life insurance.
Click here for information on high risk life insurance companies.
ILIT – Irrevocable Life Insurance Trust
An ILIT is a trust that is setup to be the owner and beneficiary of your life insurance policy. The purpose of the ILIT is to keep the life insurance policies out of your estate and to avoid potential tax issues with your life insurance.
Always consult your attorney or CPA to determine if an ILIT is right for your needs.
Impaired Risk Life Insurance
If you have a health issue currently or have had one in the past, life insurance companies may consider you to be an impaired risk life insurance candidate.
What that simply means is that you need to get to the right life insurance company based on your specific medical issue.
It is important for you to work with an expert in impaired risk life insurance as some life insurance companies will do a better job underwriting you than other life insurance companies.
A person has insurable interest in a life insurance policy when a death would cause that person to suffer a financial loss.
Acceptability to the life insurance company of an applicant for life insurance.
Insured or Insured Life
The person on whose life the life insurance policy is issued.
Level Premium Term 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 life insurance 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.
Life Insurance Cost
Life insurance cost is the total price that you will pay for your life insurance coverage. Life insurance costs vary by company, by your life insurance underwriting class, by the amount of life insurance you purchase as well as whether you are buying term life insurance, universal life insurance, or whole life insurance.
Life Insurance Declined
Have you been declined for life insurance? One of the most common reasons why insureds are declined for life insurance is that the insured was underwritten with the wrong life insurance company!
Every life insurance company is different, some life insurance companies do a fine job underwriting health issues such as diabetes, prostate cancer, heart disease, skin cancer, and more…
Other life insurance companies are a complete disaster to work with if you have a health issue. Let us help you get to the right life insurance company based on your individual health issues.
Life Insurance Rates
Life insurance rates, also known as the life insurance premium you pay for life insurance, will vary by life insurance company. Life insurance rates for term life insurance, universal life insurance, and whole life insurance are available.
Life insurance rates are determined by your age, the health class you qualify for and the amount of life insurance you need.
Life Insurance Ratings
There are a number of life insurance companies that provide life insurance ratings.
The main life insurance ratings companies are AM Best, S&P, and Moody’s. Each life insurance ratings company has its own formulas and life insurance ratings standards that they use to rate a life insurance company.
Life Insurance Table Ratings
Life insurance table 2 – Adds 50% to your life insurance rate
Life insurance table 4 – Adds 100%
Life insurance table 6 – Adds 150%
Life insurance table 8 – Adds 200%
Feel free to ask us any questions about life insurance table rating charts when we speak.
Life Insurance Underwriters
A life insurance underwriter is the person at the life insurance company who is assigned to review your application and medical history.
When a life insurance underwriter reviews your file, the underwriter will assign “debits” and “credits” to your file. Once the life insurance review is complete, the life insurance underwriter will add the debits and credits to determine the life insurance rate class that will be offered to you, unless you are postponed or declined.
Debits are negative factors such as smoker, overweight, health issues such as heart disease, diabetes, prostate cancer, etc..
An example of a credit might be weight loss, diabetes that is now controlled, a recent stress test with favorable results.
Life Insurance for Seniors
Life insurance for seniors is available with a number of life insurance companies. Life insurance underwriting for seniors will vary by life insurance company.
There are a few life insurance for seniors companies that will require less in the way of stress tests, underwriting exams, and cognitive testing.
If you have a life insurance policy that is no longer wanted or needed, the traditional options available to you would be to either cancel the policy if it was a term life insurance policy, or to cash it in for the cash surrender value if it was a permanent policy.
Another option that may be available for older insureds is to sell their life insurance policy to a life settlement company. The life settlement company would pay you a lump sum of money now, and in turn take over ownership of your policy, making all future premium payments and receiving the death benefit upon your death.
For the right situation, a life settlement may be a viable option for some insureds.
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. You may be able to borrow money against the cash value of your life insurance policy subject to life insurance company limitations.
No Lapse Guarantee
A feature available with some universal life insurance contracts. Universal life insurance contracts are dependent on having a certain amount of cash value in the policy to keep it inforce. When a life insurance policy offers a no lapse guaranteed universal life insurance, the life insurance policy provides a guaranteed death benefit as long as premiums are paid regardless of cash values.
A no lapse guarantee universal life insurance policy may provide you with a lifetime guaranteed life insurance policy with little cash value build up…similar to a term life insurance policy in many ways.
Paid-up Life Insurance
Life Insurance that will remain in force with no need to pay additional premiums. This is most common with certain types of whole life insurance policies that receive dividends.
The dividends may be used to purchase additional paid up life insurance on the existing life insurance policy.
Participating Life Insurance Policy
A life insurance policy that is eligible for the payment of dividends by the insurer (see also Dividend.) This is a whole life insurance policy.
Permanent Life Insurance
Any form of life insurance except term life insurance. Generally speaking, life insurance that builds cash value, such as universal life insurance or whole life insurance.
Pre existing life insurance, or pre existing conditions life insurance
If you have a history of health problems, this is considered to be a pre existing condition. Impaired risk life insurance companies are usually best for pre-existing conditions.
Premium Financed Life Insurance
There are instances when someone with significant net worth may have to buy life insurance. Rather than paying the life insurance premiums out of pocket, the owner of the life insurance policy may choose to finance the life insurance premiums instead, paying only the interest expense rather than the life insurance premium.
This is an option available to wealthy individuals only, typically with a minimum net worth of $5 million or greater.
The person or entity that owns a life insurance policy. The owner of the life insurance policy controls the policy and is able to change the ownership, beneficiaries, policy features, etc.
Life insurance premiums are the payments made to the life insurance company to buy a life insurance policy and to keep the life insurance policy in-force.
Renewable Term Life Insurance
Term life insurance which can be renewed at the end of the initial term, at the option of the Policy owner and without evidence of insurability. Not all term life insurance policies offer this feature.
The term life insurance rates generally increase at each renewal as the age of the insured increases.
Return of Premium – ROP
A term life insurance policy where the term life insurance premiums paid into the policy are returned at the end of the term life length.
An example would be a 10 year term life insurance policy that costs $500 per year. At the end of 10 years, the insured would receive a refund of $5,000 from the life insurance company.
Single Premium Life Insurance
A type of policy which can either be a universal life insurance policy or whole life insurance policy. In certain cases, single premium life insurance is used as an annuity alternative.
Table Shave Program
A table shave program is when a life insurance company offers a program to reduce the price of life insurance for people with health problems. Typically if the insured would be table rated due to a health issue, the table shave program may save them money.
Stands for Stranger Owned Life Insurance. Other variations of this are SOLI and IOLI. There are instances where insureds have purchased life insurance on themselves and as soon as the life insurance coverage is placed inforce, the insured sells their interest in the policy to an investor.
The insured receives a lump sum of money upfront, and the investor takes over the premium payments, receiving the death benefit proceeds upon death of the insured…there are many legal challenges taking place regarding STOLI and its legitimacy with a number of insureds being sued by the life insurance carriers over this practice.
Term Life Insurance Rates
Term life insurance rates will depend on the amount of term life insurance you buy, your age, health, etc.
Term life insurance rates are typically guaranteed for a certain period of time such as 10, 15, 20, or 30 years.
Term Life Insurance
Term Life Insurance does not build up cash value. A typical term life insurance policy will have a level premium for a period of years – 10 year term, 15 year term, 20 year term, 30 year term.
The term life insurance premium stays the same for the term life period. At the end of the term life period, the term life insurance is still available, but the term life insurance premium will increase each year thereafter.
Universal Life Insurance
A flexible premium universal 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.
Life insurance premiums (less expense charges) are credited to a universal life insurance 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. Life insurance premiums must generally be paid for as long as the policy is in force.
Terms to Know
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 life insurance coverage at the underwriting class you applied for or the life insurance company may approve you at a different rate class.
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.
Life Insurance Declined – Many times an insured may be declined for life insurance due to a health issue that is not controlled, or simply due to the fact that the life insurance agent put you with the wrong life insurance company.
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.
When we see an insured postponed, the life insurance companies will typically indicate that the person is postponed for a period of time such as 6 months or 1 year, and that after the postponement period, the life insurance company would consider the insured at an underwriting class of whatever the insured would have qualified for if no postponement existed.
You will typically see this if you are a prostate cancer survivor, had a heart issue recently, or recovered recently from an alcohol or drug rehab facility.
Life insurance table ratings
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.
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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