Life Insurance Terms - Life Insurance Definitions

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Personal History Interview (PHI)

A personal history interview is the set of questions a proposed insured is asked by their agent or underwriter to determine their risk to the insurance company. The PHI contains questions about the proposed insured's health, medications, hobbies and occupation.

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Adverse Selection (also called Anti-Selection)

Adverse selection occurs when a proposed insured who is already critically ill applies for life insurance. This is considered adverse selection because it increases the risk to the insurer. It can also create an inadequacy in the rate structure because the insurance company is charging a rate for a healthy person with lower risk.

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Term Life Insurance

A type of life insurance policy that provides coverage for a specified period of time. Policies are commonly 5, 10, 15, 20 and 30 years or until you reach a certain age such as 65 or 70. It does not build any values such as those associated with Whole Life policies.

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Settlement

An arrangement made between the policy owner or beneficiary and the insurer concerning the process in which the insurer will pay the proceeds to the beneficiary. Periodic payment may be made in lieu of a lump-sum payment depending on the contract and the amount of the policy.

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Tax Deferred

Tax deferred investments are ones in which the taxes are paid at a future date rather than in the year that the investment produced income. The cash value accumulated on Permanent life insurance policies is allowed to grow tax deferred.

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Variable Life

This takes whole life insurance and adds investment control. You pay a set premium amount, but you have the option of investing your premiums in one or more investment portfolios. Your cash value is dependent on the performance of your portfolio.

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Rider/Endorsement

An amendment to a life insurance policy that is then part of the contract and expands or limits the benefits stated.

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Actuary

A technical expert in life insurance, usually specializing in mathematics. This position applies the theories of probability to calculate mortality rates, morbidity rates, premium rates, policy reserves, along with other values.

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Universal Life

A combination of a flexible premium and an adjustable life insurance policy. The insurer can select the amount of premium and the policy benefits are those the premium itself will purchase. The insurer can also change the amount of insurance and pay the premiums accordingly. Basically, you decide when and how much you want to pay.

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Reserves

Reserves are pools of funds that insurance companies are required to keep in order to meet the financial obligation of paying death claims.

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Reinstatement

Reinstatement is the re-approval and re-activation of your life insurance policy after a lapse. Before reinstatement you ill be asked to complete a new application and you will have to go through underwriting approval. Additionally, you will be expected to pay the premiums that have been unpaid.

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Lapse

A lapse occurs when your policy premium is not paid on time and your benefits cease. Lapses can be prevented if your policy premium is always paid on or ahead of time.

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Avocation

Avocations are any hobbies you enjoy. Participation in certain hobbies such as scuba diving, bungee jumping, skydiving and others may result in your request for coverage being declined or charged an additional premium.

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Renewable Term Insurance

Term life insurance includes a provision that allows the policy owner the option to renew the coverage at the specified end of the term without submitting evidence of insurability.

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Mortgage Protection Term Life Insurance

A type of term life insurance that covers a person who has taken out a mortgage for which the benefits will pay the balance of the mortgage if the insured dies or is disabled.

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Cash Value

The amount of money a life insurance policy is worth before the adjustments for items such as policy loans or late premiums. Cash values are a feature of permanent life insurance policies. This is also known as policy owner's equity and inside build-up.

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Accelerated Benefits

Certain companies provide living benefits also known as accelerated benefits. The rider provides under certain circumstances that you can receive the proceeds of the policy even before you die. Circumstances include catastrophic or terminal illness, requiring long-term care, or being confined to a nursing home.

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Variable Universal Life

A hybrid of variable life insurance and universal life insurance within the same policy. Benefits are variable determined by the value of the equity investments. Premiums and benefits are adjustable, an option of the policyholder.

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Surrender The Policy

This is to give up a Whole Life Policy. The insurer will pay the insured the cash value for which the policy has built up.

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Underwriter

A person who classifies and assesses the potential risk that a potential insured individual represents. The person or organization guarantees that funds will be available to cover losses that are insured against. Generally the insurance company is the underwriter.

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Death Benefit

The amount of money paid to a beneficiary when the insured individual dies. The amount may not include any adjustments for outstanding dividends, additions, outstanding loans, or late payments.

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Premiums

The amount of money that you, or your employer, pays for the life insurance coverage. Most premiums are paid in monthly installments while others are paid annually or in one lump sum.

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Permanent Life Insurance

This form of life insurance stays with the insured for life as long as the premiums are paid. Premiums are invested for permanent life insurance to produce returns giving the policy a cash value generally with an interest rate and is available for use with retirement, large purchases, education funding and emergencies.

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Whole Life

This is also known as straight life. Whole life insurance is the most basic of the permanent life insurance policies. You pay the same premium the remainder of your life. Your cash value will build up based on a guaranteed rate. The policyholder can borrow against the cash value of the policy.

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Convertible Insurance

A policy that can be changed to another type of insurance without evidence of insurability. Many Term Life Insurance policies can be converted into Permanent Life Insurance.

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Beneficiary

A person who is designated to receive the life insurance benefits upon the death of the insured. This can be one person, multiple people, a charity, or a business just to name a few options.

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