Who Receives The Policy?
When you buy a life insurance policy, in addition to choosing one or more beneficiaries to receive for proceeds when you die, you will also designate an owner for the policy.
Whatever type of life insurance you decide to buy, shop around. Premiums for the same cover surprisingly vary widely. Figure out how much coverage you want and get quotes from several companies. Within an hour or so you'll be able to track down a good deal and save a pretty penny.
As you probably know, life insurance is a financial product that provides a payment (known as a benefit) when you die. The association with death makes many people feel there is something scary about life insurance. Some people refuse to buy life insurance because they feel they are worth more dead than alive. The truth is, not everyone needs life insurance. The whole point, as with any form of insurance, is to protect you and those you care about from financial loss. If there is no one who would be financially harmed by your death, then life insurance is probably unnecessary. Therefore, if you are single and have no children or other dependence, you may as well bypassed life insurance. However, if you are married or in a committed relationship; if you have a child; or if you have a mortgage or other significant obligations, then you probably need life insurance.
Term life insurance is the lowest priced life insurance coverage on the market. Term life insurance offers the best life insurance value available by providing the largest amount of coverage with the least premium dollars. In comparison to permanent life insurance products (universal or whole life) term life allows you to save money on life insurance and invest the savings in a higher yielding investment.
The following are many of the commonly
used life insurance terms that you need to know.
Accelerated benefits:
Some times known as a benefit advance rider.
A rider added to many term policies that provides an advance of
a portion of policy death proceeds prior to death if the insured
is terminally ill or in some cases confined to a nursing home. This
benefit is paid only under certain specific circumstances. Eligibility
requirements and calculation of benefit amounts are spelled out
in the policy and vary by company.
Accidental death benefit rider:
This rider pays a benefit in addition to
the regular policy amount only if death occurs as a result of an
accident.
Annuity:
A policy that either accumulates premium
deposits for payment of a future income (Deferred Annuity), or a
policy that provides a periodic income guaranteed by the insurance
company for a specified period of time. (Immediate Annuity)
Applicant:
Who ever applies for a policy. Can be an
individual, a trust, or a business.
Application:
The forms that are completed by an applicant
for life insurance. The application includes questions about health,
family history, occupation, hazardous sports, motor vehicle record,
income, and more.
Attained age conversion:
The ability to exchange a term policy for
a permanent one offered by the same company. The premium for the
new policy is based on the age of the insured at the time of the
conversion. This benefit allows a policy owner to extend coverage
farther into the future without having to undergo a new medical
exam. Conversion is only available for a specified number of years
after the original term policy is purchased, or may be limited to
a maximum age. Some term policies may not offer a conversion feature.
Check with the life insurance company for applicable rules.
Back dating:
Many companies will allow an applicant to
request a policy effective date earlier than their application date
in order to get a lower rate. Age, for
life insurance premium purposes
may be based on last birthday, or nearest birthday. The maximum
length of time that a policy can be back dated is six months in
most states. If a policy is back dated to save age, all premiums
that would have been paid during the back dated period will have
to be paid when the policy is issued. When comparing the value of
back dating a policy to save a younger age, consider how much in
back premiums would have to be paid compared to the savings in premium
over the life of the policy.
Beneficiary:
The party who will receive the benefit in
the event the insured dies.
Cash surrender value:
The amount that a policy owner may receive
if they cash surrender (cancel) a permanent life insurance policy
(universal or whole life). The net amount payable is the cash surrender
value reduced by outstanding policy loans, loan interest, or any
prior withdrawals taken from the policy.
Conditional receipt:
Some applicants may want to submit the initial
premium payment with the application and have coverage before the
policy is issued. The conditional receipt is found inside the life insurance
application and it spells out the insurance company’s terms and
conditions under which they may pay a death benefit. Consumers should
be aware that life insurance companies
limit the maximum amount of coverage
under a conditional receipt and have very specific qualifications
that must be met. Be sure and carefully read the conditional receipt
page in the application.
Contestable period:
A life insurance company may contest a death
claim for a specified period of time after the policy is in force.
The contestable period is stated in the policy and is subject-to
state regulations. The most common contestable period is two years.
Death benefit:
The amount paid by the insurance company
to the beneficiary when the person insured under the policy dies.
The benefit can include the original or basic policy death benefit,
dividends, and supplemental benefits. The total of all these benefits
will be reduced by any outstanding policy loans, loan interest,
prior policy withdrawals, or benefits paid under an accelerated
benefit rider.
Family benefit rider:
Sometimes known as a spousal or child rider.
This provides a supplemental death benefit on a spouse and/or on
dependent children. When considering a benefit for a spouse, it
is worth considering two separate term policies from the same company
because some companies offer a “spousal discount” which can save
significant amounts of money, and may be less expensive than a family
benefit rider.
Free look:
All states require that an insurance company
provide every new policy owner with a free look period. During this
period, a policy owner may return the new policy to the life insurance
company for cancellation for whatever reason, and if a premium was
already paid, receive a full refund. The free look period is stated
in the policy.
Fraud:
It is against the law to deliberately provide
false information to an insurance company when applying for insurance.
Lapse:
The termination of coverage when premiums
are not paid on time. Typically, the insurance company must receive
the premium payment within thirty days of the due date.
Level premium:
Many term policies provide a level premium
for period ranging from five to thirty years. Most policies offer
a rate guarantee for a stated number of years that may or may not
extend over the entire level premium period. Consumers should be
aware that some level premium term policies do not provide a full
premium guarantee (example: only ten years guaranteed on a fifteen
year level term policy) LifeQuote recommends that consumers consider
policies that are guaranteed for the entire period.
Life insurance:
A contract in which an insurance company
promises to pay a death benefit in the event the person insured
under the policy dies. Protects against economic loss in the event
of death.
Mode of premium payment:
Subject-to the life insurance company’s rules,
a policy owner can pay premiums annually, semi-annually, quarterly,
monthly, or by automatic monthly bank draft.
Non-smoker rate class:
If an applicant for life insurance has not used
any form of tobacco for at least one year prior to applying for
insurance, they may qualify for non-smoker rates.
Policy:
The actual written contract between the insurance
company and the policy owner. Included in the policy are a statement
of policy benefits and provisions, tables with guarantees of premiums
and/or cash values, specific language explaining policy benefits
and any riders or supplemental benefits, and a copy of the application
as completed by the insured and/or policy owner. The language in
the policy is the only official source of definitions for policy
benefits, limits, options, etc.
Rate class:
Insurance companies offer different rates
depending upon current health, personal history, family history,
hazardous activities, occupation, and other factors. “Standard”
is the rate class for people who are in average health. For people
in better than average health and who meet additional insurance
company criteria, a “preferred class” may be available. Premiums
for the preferred class are lower than a standard premium. In some
companies, there may be a “super preferred class” for people in
excellent health. The super preferred class is the most difficult
to qualify for and offers the lowest possible rates. To qualify
for super preferred, an applicant must not use tobacco, and meet
the insurance company’s height and weight, blood pressure, cholesterol,
personal history and family history requirements.
For people with special circumstances, such
as medical history, a current medical condition, or a hazardous
occupation or sport, the life insurance company may charge an additional
amount to cover a special risk. This added premium is called a rating,
or special risk class. If the condition or circumstance that caused
the rating improves, the life insurance company may, at their sole discretion,
reconsider the rating after a specified period of time.
Policy owner:
The person or entity that owns the policy.
The policy owner can be the insured, a family member, a business
associate, an employer, or a trust. The policy owner must have a
risk of economic loss (insurable interest) if the insured dies.
Reinstatement:
Subject-to the life insurance company’s guidelines,
a policy owner may apply to reinstate a lapsed policy. A reinstatement
typically requires an application, medical evidence to confirm good
health, and payment of back premiums. The insurance company has
the right to decline to reinstate a lapsed policy if the former
insured has developed health or other problems.
Renewable term policy:
Even though the premium on a term policy may be level for only a
limited period of time (twenty or thirty years), a policy owner
can continue to pay premiums and continue their policy. Many term
policies can be renewed up to age 95, however, the premiums increase
annually after the level guarantee ends, and will become very expensive.
What can a policy owner do if their need for coverage will be longer
than the level premium on their term policy? One option is to consider
a term conversion to a permanent policy. Consumers should be aware
that a term conversion option may not be available beyond a certain
number of years or above a maximum age.
Replacement:
If a policy owner cancels, lapses, reduces,
or makes substantial changes in existing life insurance when buying a
new policy, they are “replacing”. Each state has specific rules
regarding the replacement of existing life insurance. A disclosure must
be given to the applicant and in many states, a comparison of policy
features must also be completed. Never cancel existing insurance
until a satisfactory replacement policy has been issued, delivered,
and is in force.
Rider:
A supplemental benefit that may be added
to a policy. Some popular riders are waiver of premium upon total
disability, accidental death benefit, family or child rider, and
the accelerated benefit rider.
Sales illustration:
A print out from the insurance company that
illustrates the premiums, benefits and values of the proposed policy.
Sales illustrations must comply with state regulations and contain
clear disclosure of both guaranteed and non guaranteed features
of the policy. Most life insurance companies now require an applicant
sign the illustration and include it with the application. For your
protection, LifeQuote requires all applicants to sign the sales
illustration that is included with every application.
Survivor life:
Also known as second to die insurance. This
policy covers two people, often a husband and wife or two business
partners. The policy is designed to pay a death benefit only on
the second death. This is especially useful when used as part of
a professionally designed estate plan. The cost of a survivor life
policy is often significantly less than the cost of two identical
individual permanent policies.
Suicide provision:
If the insured takes their own life within
a specified period of time after buying a policy, the life insurance
company will not pay a benefit. Usually the provision is effective
for the first two years after the policy effective date. Specific
provisions may vary, check the language in the policy.
Term insurance:
A policy that pays a benefit only if the
insured dies during a specified period of time. Term is only a death
benefit plan and offers no cash values. For consumers needing life insurance
for a limited period of time, term insurance offers the lowest premium.
Underwriting:
The process in which the insurance company
evaluates an applicant to determine if they will offer insurance
and if so, at what rate class. The life insurance company considers information
in the application, medical exam, lab results, motor vehicle report,
consumer interview /or inspection as well as information from attending
physicians.