Life Insurance Terms
Life office – The insurance company who is issuing the life insurance policy
Life Insured – The person whose life the insurance policy covers
Sum insured /Insurance Cover/ Sum Assured – The amount that is payable if the ‘life insured’ dies during the period of the policy
Proposer – This is the person who applies for a life insurance policy
Policy owner – The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation. This is the only person allowed to make changes policy
Joint life – This refers to a life policy which covers not one but two or more ‘life insured’s’. The policy pays out the death benefit on the death of one of the two lifes, after which the policy terminates
Beneficiary – This is the person or persons designated to receive the proceeds of the life insurance upon the death of the insured. It may be one person; it may be several persons sharing equally or as designated. The beneficiary is the person named in the policy; wills and bequests in a will cannot alter the beneficiary designation on the policy itself.
NOTE: It is generally not considered wise to name minor children as beneficiaries because that can tie up the proceeds until they become of age.
Underwriting – This is the process where the insurance company looks at client’s details and decides whether or not to accept the risk and agree to issue a life insurance policy. This might be a quick and simple process or it may take some time and involve medical reports with perhaps the insurance company imposing certain extra terms to the policy
In force – This is the policy status of active
Paid-up Insurance – Insurance that will remain in force with no need to pay additional premiums
Reduced Paid-up – Insurance that will remain in force with no need to pay additional premiums but the policy guaranteed benefits cease.
Cash Value – Savings that accumulate in policies that are accessible through borrowing or surrendering the policy.
Types of Life Insurance
Term life policy – This refers to a life insurance policy which pays out on the death of the ‘life insured’ if that person dies within the ‘term’ (period) of the policy. The policy for example could run for ten, twenty or twenty five years
Decreasing term life policy – This refers to a ‘term life insurance policy’ where the sum insured reduces at a pre-agreed rate. This type of policy is often used to cover the reducing outstanding balance of a repayment mortgage
Level term life policy – This refers to a ‘term life insurance policy’ where the sum insured remains level during the period
Whole Life Insurance – This is life insurance that will last as long as the insured person is alive, provided the premiums are all paid on time. In addition, these policies usually keep the same premium rate for the life of the policy.
Universal Life Insurance – This is life insurance where the Cash Values are put into various investments that will often earn more in interest. Excess accumulated Cash Values can be used to reduce future premiums or increase the Face Amount. Although this product is marketed heavily, it has been somewhat slow to become popular because of its complicated structure.
Group Life Insurance – Most employers who offer employee benefits will provide a basic amount of life insurance to all employees. This coverage is almost always guarantee issue, without requiring any medical information. The Face Amount is determined by the employer and may be a flat amount for everyone or use a schedule.
Critical illness – This refers to a type of coverage which would pay out the sum insured if the insured life was to be diagnosed with a ‘critical illness’ being an illness which appears on a pre-agreed list of critical illnesses.
Terminal illness – This refers to a type of coverage which would pay out if the life insured is diagnosed as having terminal illness and not expected to survive for a set period of months.
Accidental Death – This is an additional feature, called a “rider,” that is added to many individual life insurance policies and most group insurance policies. It doubles the Sum Assured if the death of the insured is due to accidental bodily injury rather than illness.
Disability Waiver of Premium – This benefit, also included in many individual policies and most group policies, allows the coverage to stay in force without premium payment while the insured is totally disabled.
Life insurance is really one of the simplest policies in concept. If the insured dies, the insurance company pays the Sum Assured to the Beneficiary.