Chapter 4 Keywords: Life Insurance Policy Types

Keywords

Accidental Death and Dismemberment Insurance (AD&D)

This is a form of insurance that provides benefits in the event of accidental death; the accidental loss of sight, speech, or hearing; loss of use of limbs (i.e., paralysis); or loss of a member(s), such as the loss of an arm or a leg.

Accidental Death Benefit (ADB)

The ADB provides a lump-sum payment for loss of life due to an accident that was the direct cause of death. The cause of the death must be accidental for a benefit to be payable under the policy.

Additional Premium

This provision is used in Universal Life Policies. Additional premiums can be paid into the policy account in an amount above the target premium. Current tax laws limit the amount of excess cash value that can be accumulated in a life insurance policy. The insurance company may not accept the additional premium if it nears this limit without increasing the limit of life insurance (subject to underwriting).

Attained Age

This is the age that a person or an insured has attained as of a given date. For life insurance purposes, the age is based on either the nearest birthday or the last birthday, depending on the practices of the insurance company involved. Attained age is also referred to as “current age.”

Adjustable Life Insurance

This is a type of policy that combines permanent, whole life, and temporary term life into a single plan that provides the policy owner with the flexibility to adjust premiums throughout the life of the policy.

Cash Surrender Value

This is the amount that’s available in cash upon the surrender of a policy by the owner before or after the policy matures (as a death claim or otherwise). This value is also simply referred to as surrender value.

Cash Value

This is the equity portion of a whole life policy that increases with each subsequent premium payment. The insurer pays interest on the cash value, which is tax-deferred. In a whole life policy, the cash value is designed to equal the policy’s death benefit at age 100. Traditional whole life insurance policies are considered to mature when the insured attains the age of 100.

Credit Insurance

This is insurance that’s designed to pay the balance of a loan if the insured dies or becomes permanently disabled before the loan has been repaid in full. Generally, credit insurance is sold by a lender or finance company.

Convertible Term Life Insurance

This is temporary life insurance that provides the policy owner with the right to exchange an existing policy for other policies that are offered by the insurance company. This conversion may be the conversion of individual term insurance to an individual permanent plan that a company sells or the conversion of group disability, life, or health to an individual plan.

Decreasing Term Insurance

This is a type of temporary or pure protection that’s characterized by a reducing face amount each year and the cost of this coverage remains constant. Decreasing term insurance may be referred to as mortgage redemption or mortgage protection insurance since it’s primarily used in conjunction with a debt or loan.

Endowment Contract

This contract pays a face amount after a fixed time period, at a specific age, or upon the death of the insured if it occurs before the end of the period.

Evidence of Insurability

This involves an insurance applicant establishing the fact that they meet the insurance company’s health requirements. Statements of good health, attending physician statements, health history, and an applicant’s current health can all be used as evidence of insurability.

Extended Term Insurance

This is a non-forfeiture option that’s available when a policy is surrendered and the same face amount of the policy is continued in force for a specified additional period; however, the coverage has changed from permanent to level term protection. Extended term insurance is the non-forfeiture option that provides the policy owner with the highest face amount of coverage.

Face Amount

This is another name for the death benefit of a life insurance policy.

Family Income Policy

This is a policy that combines a whole life policy with a decreasing term rider to provide a death benefit together with monthly income payments to the beneficiary. Monthly income payments are made only from the date of death until the maturity date of the contract. Thereafter, the lump sum part of the whole life coverage is paid.

Family Maintenance Policy

This is a type of policy that combines whole life insurance and a level term rider. It provides for the payment of a monthly income during a stated period of years once the insured dies. The monthly income is payable from the date of death to the end of the pre-selected period. The payment of the face amount of the policy is payable at the end of the pre-selected period.

Family Policy

This is a policy that covers an entire family. Whole life insurance covers the primary insured (i.e., breadwinner) with varying amounts of level term insurance on the remainder of the family.

Guideline Premium

This represents the maximum premium that can be paid into universal life policies and still have the benefit qualify as life insurance under federal tax laws. If a guideline premium is paid regularly, there may be little margin for any additional premium payments into a universal life insurance policy account.

Indexed Contracts

These are contracts in which the policy holder can share in a percentage of the growth of an indexed investment (e.g., a mutual fund tied to the Standard & Poor’s Index). The principle (benefit) is guaranteed, and in many cases, a minimum interest is guaranteed. These products are not considered securities.

Increasing Term Life Insurance

This is term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.

Industrial Life Insurance

This is insurance under which premiums are paid monthly or more often (i.e., weekly). Additionally, the face amount of the policy doesn’t exceed a stated amount, and the words “industrial policy” are printed in prominent type on the face of the policy. Industrial life insurance is also referred to as “debit insurance.”

Joint Life Insurance (First to Die Insurance)

This is a life insurance policy that covers the lives of two or more persons. The policy pays a death benefit and ends when the first insured dies. This type of policy is also referred to as “first to die” insurance.

Joint Life Survivor (Last to Die Insurance)

This is a life insurance policy that covers the lives of two or more persons. The policy pays a death benefit and ends when the last insured dies. This type of policy is also referred to as “last to die” insurance.

Juvenile Life Insurance

This is a life insurance policy that’s owned by an adult and written on the lives of children.

Level Premium

This describes a premium that remains constant, fixed, or predetermined throughout the life of a policy.

Life Insurance

This represents insurance on the lives of human beings that creates an immediate and guaranteed estate upon the death of an insured or at the end of a predetermined period (in whole life insurance, this is age 100).

Limited Pay Life Insurance

This is a life insurance plan under which the premiums are payable for a specified number of years, after which the policy remains in effect for life without any additional payments. However, the policy still doesn’t mature until age 100.

Maturity Date

This is the date on which a life insurance policy becomes payable due to the death of the insured or as a result of an insured’s living to the end of a specified period (i.e., age 100). In whole life insurance, the cash value is designed to equal the face amount at maturity.

Maturity Value

This is the amount that’s paid under a whole life insurance contract if the insured reaches the age of the mortality table on which the contract was based. If it’s an endowment contract, it represents the cash value amount at the end of the endowment period.

Modified Endowment Contract (MEC)

This is a whole life insurance policy under which the amount a policy owner pays in premium during the early years exceeds the sum of premiums required for the first seven years of insurance. The IRS views MECs as the policy owner’s attempt to use the policy as a short-term investment vehicle, and as such, the policy will be designated for tax purposes as an MEC.

Modified Life Policy

This is a whole life plan that’s characterized by a lower premium during the initial years of the contract to make it more affordable for the policy owner. The premium then increases after this introductory period and remains level for the life of the contract.

Mortgage Redemption Plan

This is another name for a decreasing term life insurance policy. This type of plan is used to provide funds for a survivor to pay off a debt. This type of plan is also referred to as mortgage protection coverage or reducing term insurance.

Mutual Insurance Company

This is an insurance company that’s owned and controlled by its policy holders. Mutual insurance companies issue participating policies that may pay dividends to policy holders.

Non-Forfeiture Values

These are benefits that are required by law to be made available to the policy owner if she surrenders the policy by discontinuing premium payments. These values state that the owner will not forfeit or lose all that she has invested in the policy. Also referred to as non-forfeiture options, they include surrender for cash, extended term insurance, and reduced paid-up insurance.

Non-Medical Life Insurance

This is issued without requiring the applicant to submit to a medical examination. The insurer relies on the applicant’s answers to the questions regarding his physical condition, personal references, and inspection reports. However, the insurance company retains the right to require a medical examination if an investigation indicates a need for one.

Non-Participating Insurance

This is a type of insurance policy that’s issued by a stock insurer. This form of insurance contract doesn’t pay dividends to the policy holders.

Ordinary Life Insurance

This is most often described as an insurance policy that’s issued by commercial insurers with face values of $1,000, or multiples thereof.

Paid-Up Insurance

This is life insurance on which future premium payments are not required. Frequently, the term is used to identify a 10, 20, or 30 payment life insurance policy on which 10, 20, or 30 annual premium payments have been paid. Although the policy is “paid-up” at the end of the payment period, the contract doesn’t mature until the age of 100.

Participating Insurance

This is a type of insurance policy that entitles the policy holder to share in the divisible surplus of the insurer through dividends.

Permanent Life Insurance

This is any plan of life insurance that’s designed to last throughout the life of the insured. Level premium, cash value, and non-forfeiture options characterize permanent life insurance.

Policy Proceeds

This refers to the amount that’s paid as a death, surrender, or maturity benefit. In the case of a death benefit, it includes the face value, plus any earned dividends, minus any outstanding loans and interest. If paid as a surrender benefit, the amount includes any cash value, minus surrender charges, outstanding loans, and interest. If the benefit is paid at maturity, the benefit includes the cash value, minus any outstanding loans and interest.

Policy Term

Typically expressed in years, this is the time for which a policy remains in existence.

Renewable Term Life Insurance

This is temporary life insurance that may be renewed at the end of the policy term without evidence of insurability. The premium is based on the attained age of the insured and, as such, increases at each renewal.

Single-Premium Insurance

This form of insurance involves the payment of one premium that’s large enough to cover the cost of a life or annuity contract for life. This is also referred to as a lump-sum premium.

Straight Life Insurance

This is a type of whole life insurance that provides coverage for the entire life of the insured and for which the premiums are payable until death. This is also referred to as continuous premium life.

Stock Insurance Company

This is an insurance company that’s owned and controlled by its stockholders who share in its divisible surplus. Generally, stock insurance companies issue non-participating life insurance; however, some also issue participating life insurance policies.

Target Premium

This represents the suggested premium that’s used in universal life insurance policies; however, there’s no guarantee that there will be adequate funds to maintain the policy. Instead, it may indicate what will be needed (under conservative estimates) to maintain the policy. The validity of a target premium is based on an individual insurance company’s marketing stance, investment performance, and cost control.

Term Life Insurance

This is temporary life insurance that’s generally designed to afford coverage for a limited number of years. The policy includes no cash value and can be described as pure protection.

Universal Life Insurance

This is adjustable life insurance under which premiums and coverage are adjustable. For a universal policy, company expenses are not explicitly disclosed to the insured, but a financial report is provided to policy holders annually.

Variable Life Insurance

This is life insurance whose face value or duration varies depending on the value of underlying securities.

Variable Universal Life Insurance

This form of insurance combines the flexible premium features of universal life with the component of variable life in which excess credited to the cash value of the account depends on investment results of separate accounts. The policy holder selects the accounts into which the premium payments are to be made.

Whole Life Insurance

This is the form of life insurance that may be kept in force for a person’s entire life, and that pays a benefit upon the person’s death.