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Glossary of Terms

This glossary of common life insurance terms provides detailed definitions of common terms you will encounter during the process of securing term life insurance.

Accelerated Death Benefit: An optional provision in a life insurance policy that allows a specified percentage of the death benefit (less than 100%) to be paid prior to the insured's death, if a doctor certifies that the insured's life expectancy is limited (usually 12 months or less).

Agent: An authorized and licensed representative of an insurance company who solicits and services insurance contracts. Also known as an Associate.

Application: A written form provided by an insurance company. The form provides information about the physical condition, occupation and avocation of the proposed insured. The policy application is signed by the applicant (typically, but not always, the insured) and becomes a part of the information an insurance company considers when deciding whether or not, and on what terms and conditions, a policy should be issued.

Beneficiary: A life insurance beneficiary is the person who will receive the policy benefits upon the death of the insured. You may select one beneficiary, such as a spouse, or have multiple beneficiaries. Plus, if you desire, you can add or change your beneficiaries at any time simply by calling the life insurance company.

Beneficiary (contingent): The individual(s) designated to receive a death benefit in the event the primary beneficiary(ies) is/are no longer living at the time the insured or annuitant dies.

Coverage Amount / Face Amount: The amount that the policy will pay to the insured's beneficiaries in the event of the death of the insured.

Conversion: A policy may contain a provision providing that under certain circumstances the policy may be exchanged for another life insurance policy, typically without further underwriting requirements. For instance, term insurance can be converted to whole life or, in some cases, another form of permanent life insurance.

Date of issue: The effective date of the policy or contract as issued by the insurer.

Evidence of Insurability: Proof of a person's physical condition, occupation, or other factors, utilized by an insurance company to determine the acceptability of the applicant for insurance.

In Force: The life insurance phrase to describe a status of your policy. If your term life insurance policy is "In Force", then the premium payments have been made and you are currently protected.

Insured: The person who is covered by a life insurance policy.

Lapse: The termination of an insurance policy resulting from nonpayment of premiums or, in the case of variable life and universal life insurance policies, the depletion of cash value below the amount needed to keep the policy in force. Under certain circumstances, coverage might continue under a settlement option.

Length of Coverage/Term Length: Length of time, or term, that you choose to have term life insurance coverage. Typically, term life insurance is issued in yearly increments, such as 10, 20 or 30 years. But it is also possible to get a term life insurance policy tailored to your specific needs.

Medical Information Bureau (MIB): An independent entity that collects and stores medical data on life and health insurance applicants. The information is exchanged among member insurance companies upon written authorization from the insured. Its purpose is to guard against fraud and concealment by helping insurers discover pertinent, yet undisclosed, health facts.

Premium: A premium is the payment you make to the life insurance company for your life insurance coverage.

Premium Mode: Premium payments can typically be made monthly, quarterly, semi-annually or annually. The time period you choose is known as your "premium mode".

Proposed Insured: The person who will be covered by a life insurance policy that is currently going through underwriting. In other words, this person's life insurance policy is not yet in force. (see also: Insured).

Rate Class: A "rate class" is the classification assigned to you during the underwriting process that indicates what you will pay for your term life insurance coverage.

Rated (Table Rated): A rated policy is one issued on a substandard risk with higher-than-standard premiums.

Rider: A written agreement attached to a life insurance policy or annuity contract that limits or expands the policy's or contract's terms or coverage. Riders may increase the premium you pay to the insurance company.

Underwriting Guidelines: Underwriting is the process that life insurance companies undergo for each new life insurance application. They use a set of guidelines to determine the appropriate rate class and can then define the premiums for your life insurance coverage.

 

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