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Term Life Insurance Terminology
A life insurance rider that allows for the early payment of some portion of the policy's face amount should the insured suffer from a terminal illness or injury. Top of Page
Accidental Death and Dismemberment Insurance providing payment if the insured's death results from an accident or if the insured accidentally severs a limb above the wrist or ankle joints or totally and irreversibly loses his or her eyesight. Top of Page
Accidental Death Benefit Rider A life insurance policy rider providing for payment of an additional benefit related to the face amount of the base policy when death occurs by accidental means. Top of Page
A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year, without evidence of insurability. Also called Yearly Renewable Term (YRT). Top of Page
Person to whom the proceeds of a life policy are payable when the insured dies. The various types of beneficiaries are: primary beneficiaries (those first entitled to proceeds); secondary beneficiaries (those entitled to proceeds if no primary beneficiary is living when the insured dies); and tertiary beneficiaries (those entitled to proceeds if no primary or secondary beneficiaries are alive when the insured dies). Top of Page
A guide, published by A.M. Best, Inc., that rates insurers' financial integrity and managerial and operational strengths. Top of Page
Given to policy owners when they pay a premium at time of application. Interim coverage during the underwriting process is provided subject to terms and conditions of the receipt. Top of Page
Person or persons named to receive proceeds in case the original beneficiary is not alive. Also referred to as secondary or tertiary beneficiary. Top of Page
Allows the policy-owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue). Top of Page
Contract that may be converted to a permanent form of insurance without medical examination. Top of Page
Term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annually. Top of Page
A type of health insurance coverage, it provides for the payment of regular, periodic income should the insured become disabled from illness or injury. Top of Page
There are five major insurance industry ratings services; A.M. Best, Standard & Poor's, Moody's, Fitch, and Weiss. These services provide information on insurance company financial performance, stability, claims paying ability, and more. The top ratings are: A.M. Best= A++, Standard & Poor's=AAA, Moody's=Aaa, Fitch=AAA, Weiss=A+. Generally, TermOnline recommends companies that carry at least an A+ rating from A.M. Best. Occasionally, an A- rated company may be quoted if price and company performance justifies the selection. Top of Page
Term life insurance in which the death benefit increases periodically over the policy's term. Usually purchased as a cost of living rider to a whole life policy. Top of Page
Term coverage on which the face value and premiums remain unchanged from the date the policy comes into force to the date the policy expires. Top of Page
Usually conducted by a licensed paramedic; the medical report is part of the application, becomes part of the policy contract and is attached to the policy. A "non-medical" is a short-form medical report filled out by the agent. Various company rules, such as amount of insurance applied for or already in force; applicant's age, sex, past physical history; data revealed by inspection report, etc., determine whether the application will be accepted on "medical" or "non-medical." basis. Top of Page
A document completed by a physician or another approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability) or in relation to a claim. Top of Page
The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant. Top of Page
A term rider covering an eligible family member or business member other than the insured that is attached to the base policy covering the insured. Top of Page
A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age. (See standard risk.) Top of Page
The periodic payment required to keep and insurance policy in force. Top of Page
In life insurance, the beneficiary designated by the insured as the first to receive policy benefits. Top of Page
Net amount of money payable by the company at the insured's death or at policy maturity. Top of Page
Strictly speaking, a rider adds something to a policy. However, the term is used loosely to refer to any supplemental agreement attached to and made a part of the policy, whether the policy's conditions are expanded and additional coverage added, or a coverage or condition is waived. Top of Page
An alternate beneficiary designated to receive payment, usually in the event the original beneficiary predeceases the insured. Top of Page
Insurers will give a lower premium rate to buyers who do not smoke or use tobacco. If you smoked in the past, most term life insurance carriers will consider you a non-smoker if you have not smoked for one year prior to applying for coverage. Consumers should be aware that nicotine can be detected in a variety of routine screenings tests that are now commonly required by most insurance companies. Top of Page
Person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions. Top of Page
Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits. Top of Page
Most life insurance policies provide that if the insured commits suicide within a specified period, usually two years, after the issue date, the company's liability will be limited to a return of premiums paid. Top of Page
Protection during limited number of years; expiring without value if the insured survives the stated period, which may be one or more years but usually is five to twenty years, because such periods usually cover the needs for temporary protection. Top of Page
Period for which the policy runs. In life insurance, this is to the end of the term period for term insurance. How Much Term Life Insurance do I Need? Your life insurance needs will vary over time as your personal financial goals, needs and resources change.
The starting point for an effective life insurance plan is to identify whether a risk exists and to define the financial impact of a premature death as a specific dollar cost. Top of Page
Several methods are used to quantify this amount:
A Simple Rule of Thumb This method calculates your need for life insurance as a multiple of your annual salary or earnings. Five to ten times earning is the most simple rule of thumb. Clearly, this method is very simple; however, it may not allow you to address all of your individual financial goals. In addition, different advisors suggest different multiples. This makes the calculation of a precise amount difficult. Top of Page
Income Replacement This method focuses on the replacement of some percentage of salary or earnings for a specified period of time. The value of the income replacement can be calculated and compared to the assets you currently have. Any difference between needs and resources can be funded with life insurance. While this method is not difficult to calculate, it may not adequately fund all of your financial goals if your present income does not fully fund these goals Top of Page
Financial Needs This method focuses on the expected financial needs of the survivors, including:
This method requires that you estimate the amount of the specific needs that are relevant to you. If you are married, you would consider the financial impact of the death of either spouse. Plus, you would evaluate how long each need will last and whether each need will increase or decrease over time. Knowing the duration of each need can help you select an appropriate insurance product. You would also factor in the impact of inflation on long-term needs.
Once you calculate the financial impact of a premature death, you can compare the amount to the resources you currently have available. If there is a difference, you can decide which needs to address first and begin to explore alternative ways to fund any shortfall.
Focus first and spend your premium dollars on those needs with the greatest financial impact and the most immediate time frames. Top of Page
Company receiving premiums and accepting responsibility for fulfilling the policy contract. Also, company employee who decides whether the company should assume a particular risk; or the agent who sells the policy. Top of Page
One not acceptable for insurance due to excessive risk. Top of Page
Rider or provision included in most life insurance policies exempting the insured from paying premiums after he or she has been disabled for a specified period of time, usually six months. Top of Page |
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