Life insurance provides benefits to your designated beneficiaries should you die unexpectedly. It is designed to protect your loved ones from devastating financial problems, and reassure you that they will be taken care of following your death. Mountain Life is eager to assist our policy owners and potential clients by educating them about life insurance terms and phrases.
This glossary of common life insurance terms provides definitions of common terms you will encounter during the process of purchasing life insurance.
Accidental death means death resulting from an accident under terms of the policy or policy benefit rider.
Age means the insured’s age at the insured’s last birthday at Mountain Life Insurance Company. The issue age is the insured’s age on the policy issue date.
A licensed and accredited representative of an insurance company, who solicits and services insurance contracts.
A written form provided by an insurance company that provides information about the plans, physical condition, habits, financial condition, medical history and occupation of the proposed insured. The application is signed by the applicant and agent, and becomes a part of the policy.
Assignment is the act of giving the proceeds of a life insurance policy to someone or some entity other than the beneficiary. Life insurance proceeds are generally assigned to a financial institution to cover a loan transaction and are known as collateral assignments.
Automatic Premium Loan
This provision, if selected, will automatically make a policy loan to pay premiums and interest if the policy has sufficient loan value. Without this selected provision the policy will lapse to a paid up option.
Basis of Values
The values in a policy are based on a method of computation that meets minimum standards and are on file with the state.
The person(s) or entity that receives policy benefits payable at insured’s death.
The person(s) or entity that receives policy benefits at the time of the insured’s death when all primary beneficiary’s have pre-deceased the insured.
Cash values are values in a policy that are not less than the minimum values required by a state for the type of policy issued.
Contestability Period is the period of time the life insurance company can contest the policy based on information provided in the application or reinstatement application.
A provision providing that under certain circumstances a life insurance policy may be exchanged for another policy, usually without further underwriting requirements. For instance, certain term insurance policies can be converted to whole life or another form of permanent life insurance.
Coverage Amount / Face Amount
The amount of life insurance being applied for by the proposed insured.
Date of issue
The effective date of the contract or policy as specified by the insurer. This is also known as policy date.
Evidence of Insurability
Certification of a person’s physical condition, medical history, habits, occupation or other factors used by an insurance company to determine the insurability of the applicant.
Extended Term Option
Under this paid up option, the policy continues in force from the date of the unpaid premium with a death benefit equal to the face amount. However, the term runs for whatever period of time the surrender value will buy. The Extended Term Option is not available on all policies.
This refers to the period of time after the premium due date of an unpaid premium. During this time the policy remains in force. The grace period is generally 31 days.
A phrase to describe an active life insurance policy. A life insurance policy is “In Force”, when then the premium payments have been made and the insured is currently protected.
Incontestability is the period of time the insurance company cannot contest the policy except for nonpayment of premiums. The incontestability period is generally two years from the policy or issue date, in most states.
Insurance, by its nature, is a way of pooling risks. Everyone in the pool pays insurance premiums while hoping they will not need to collect. The company bears the risk, hoping that the amount of the premiums paid will cover any losses incurred by the group.
The person who is covered by a life insurance policy.
The discontinuation of an insurance policy resulting from nonpayment of premiums needed to keep the policy in force.
In the case of life insurance, your life is the risk. The insurance company offers a policy to an individual after carefully weighing the likelihood of when he/she will die while the contract is in force.
A table that shows an insurance company how many deaths are expected in a given period of time. The actuaries use this information and other information to set premium rates.
A membership corporation in continuous operation since 1902 whose primary mission is detecting and deterring fraud that may occur in the course of obtaining life, health, disability income, critical illness, and long-term care insurance.
Calculations of premiums are made using annual premiums. If payments are made less often than annual a factor is used for other modes of payment that will result in approximately the same amount of premiums paid considering the time value of money.
Nonforfeiture values are values in the policy that are required by the state. Cash values and Paid Up options form these values.
The owner of a life insurance policy is the person who may exercise all policy privileges and rights while the insured is living.
Some companies, generally mutual companies, offer policies that participate in the divisible surplus of the company. These are called dividends and are a return of unneeded premium. Non participating policies do not participate in the financial position of the company. Premiums are generally lower in non participating companies, also called stock companies.
Permanent Life Insurance
Permanent life insurance remains in force for the full life of the insured as long as premium payments are made in accordance with policy provisions.
The policy anniversary is the same date and month as the policy date for each succeeding year.
Policy date is the date the policy begins. This date is used to calculate policy anniversaries, policy months, policy years and premium due dates.
A policy loan is a loan using the surrender value in a life insurance policy. Since the Company expects the value to be present, interest is charged if the policy loan is made. The policy is security for the policy loan and creates indebtedness in the policy.
Policy year is the period of time from the policy date to the first policy anniversary or from one anniversary to the next.
Payments that are made to the life insurance company for life insurance coverage.
The frequency a person chooses to pay a life insurance policy premium. Premium payments can typically be made monthly, quarterly, semi-annually or annually.
The person who will be covered by a life insurance policy that is currently being passed through the underwriting process.
The classification assigned to the proposed insured during the underwriting process that indicates what premiums will be paid for life insurance coverage.
Reduced Paid Up Option
Under the paid up option, the policy continues in force from the due date of the unpaid premium until the maturity date of the policy but for a death benefit less than the face amount.
If a policy lapses, it can be placed back in force subject to a written application for reinstatement including evidence of insurability and the necessary premium payment. All reinstatements are subject to company approval.
A term policy is renewed by sending the Company the renewal premium following the end of the preceding term period while the policy is in force. No evidence of insurability is generally required.
A written agreement attached to a life insurance policy that limits or expands the policy or contract terms or coverage. Riders may increase the premium you pay to the insurance company. Examples of riders include:
Accidental Death benefit rider
Premium Waiver benefit rider
Guaranteed Insurability rider
This refers to the method of payment of the death benefit of a life insurance policy. A single payment is the most common payment method. Other methods allow for payments over time.
This provision generally allows the company to deny coverage and return all premiums paid if the insured dies within two years of the policy or issue date as a result of suicide.
The surrender value is the cash value of a policy less any indebtedness at the end of the current policy month.
Term Life Insurance
Term life insurance provides life insurance for a limited period of time. It is for a specific term, a number of years or until the insured reaches a certain age. If the insured survives the specified term, the policy simply ends.
Terminate means the insured’s life is no longer insured.
Underwriting is a process that evaluates the risk and exposures of the proposed insured to the insuring company.