Term Life Insurance Glossary
Confused About a Term?
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. Please note that the cash value only pertains to permanent life
insurance and not term life insurance.
Cash Value Life Insurance: Cash Value Life Insurance is a type of insurance
where premiums charged are higher at the beginning than they would be for the same amount of term insurance. The part of the premium that is not used for the cost of insurance is invested by the
company and builds up a cash value that may be used in a variety of ways. You may borrow against a policy's cash value by taking a policy loan. If you don't pay back the loan and the interest on it,
the amount you owe will be subtracted from the benefits when you die, or from the cash value if you stop paying premiums and take out the remaining cash value. You can also use your cash value to
keep insurance protection for a limited time or to buy a reduced amount without having to pay more premiums. You also can use the cash value to increase your income in retirement or to help pay for
needs such as a child's tuition without canceling the policy. However, to build up this cash value, you must pay higher premiums in the earlier years of the policy. Cash value life insurance may be
one of several types; whole life, universal life and variable life are all types of cash value insurance.
Convertible Term Insurance: Term insurance that can be exchanged (converted),
at the option of the policy owner and without evidence of insurability, for a permanent insurance policy.
Face Amount: The amount stated on 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, and can be reduced by loans or
withdrawals.
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.
Permanent (Life Insurance): Any form of life insurance except term life
insurance; 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 that 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.
Term Insurance: Term Insurance covers you for a term of one or more years. It
pays a death benefit only if you die in that term. Term life insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value. You can
renew most term insurance policies for one or more terms even if your health has changed. Each time you renew the policy for a new term, premiums may be higher. Ask what the premiums will be if you
continue to renew the policy. Also ask if you will lose the right to renew the policy at some age. For a higher premium, some companies will give you the right to keep the policy in force for a
guaranteed period at the same price each year. At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase. You may be able to trade many term
insurance policies for a cash value policy during a conversion period -- even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term life
insurance.
Variable Life Insurance: Variable Life Insurance is a kind of insurance where
the death benefits and cash values depend on the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments allowed under the policy. Be sure
to get the prospectus from the company when buying this kind of policy and STUDY IT CAREFULLY. You will have higher death benefits and cash value if the underlying investments do well. Your benefits
and cash value will be lower or may disappear if the investments you chose didn't do as well as you expected. You may pay an extra premium for a guaranteed death benefit.
Whole Life Insurance: Whole Life Insurance covers you for as long as you live
if your premiums are paid. You generally pay the same amount in premiums for as long as you live. When you first take out the policy, premiums can be several times higher than you would pay initially
for the same amount of term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term policy until your later years. Some whole life policies let
you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher since the premium payments are made during a shorter period.
