Every industry has its own jargon and acronyms
which confuse the average person. The Life Insurance business is no less guilty
when it comes to special terms and phrases.
The intent of this blog is to provide some
answers to some of the most commonly misunderstood insurance terms.
Every policy, and every company has its own
contractual definitions and you should check with your carrier for accurate
meanings.
The following terms are being defined
for general understanding:
Death
Benefit: The sum of money that will be paid at the
death of a life insured.
Beneficiary: The person(s), company, or
estate that the death benefit will be paid to; following the death of the life
insured.
Waiver
of Premium: This is where the premiums for the
insurance policy are paid by the insurance company if the life insured or the
policy owner is disabled or dies.
Guaranteed
Insurance Benefit: This benefit is a contractual
provision which allows the life insured to purchase additional insurance at
future dates/ages without the need to provide additional health evidence at the
time the option is exercised.
Issue
age: The age
at which a policy is first purchased. A parent might purchase a policy on a new
born at which time the Issue age would be said to be “0”. Conversely a 50 year
old person might buy a policy and the issue age would be said to be 50.
Grace
Period: If you miss a monthly premium payment, a
period of time is generally offered for you to make that payment. This “Grace”
period is often 30 days. Following a “grace period” a term policy would lapse
and therefore the policy would be cancelled due to non-payment. A policy which
has a Cash Surrender Value may remain in force as the Cash Surrender Value may
extend the lapse date.
Term
Insurance: A life insurance policy which provided
coverage for a specific amount of time, such as 10 year or 20 years, or even to
age 100. Term policies typically do not have any investment component. Premiums
are guaranteed for the length of the “term”.
Convertibility
Option: This is an option found in some term
insurance policies where the policy owner has the right to “change” (convert)
all or part of the term insurance policy into a different type of policy which
is more permanent in nature. When a policy is converted, no health questions
are asked at the time of the conversion.
Renewable: Following the initial “term” of 10 or 20 years, a client may
continue the policy for another “term”. In this case, the policy is said to
“renew”. The premium will increase to a predetermined amount stipulated in the
policy.
Permanent
insurance: Insurance which is designed to be in force
forever (generally age 100) is referred to as a permanent policy. Permanent
polices generally have a Cash Surrender Value. By way of example, a Whole Life
policy is a permanent policy.
Cash
Surrender Value: If a client has a policy in which a
pool of money is building up within the policy, the policy owner may cancel the
policy. In exchange for terminating the policy, the
client will receive the accumulated money. The cash surrender value is the
total amount of money available when the policy is surrendered.
Dividend: A life insurance dividend is a cash payment to a policy owner
which represents a portion of profits from a pool of other similar policies.
Dividends are paid to policy owners, in part, based on the age of one’s policy
and the size of the policy. Dividends are not guaranteed.
Paid
Up Additions (PUAs): When a dividend is received a
policy owner has several options. One such option is to use the dividend to buy
a “single payment” piece of life insurance. While the premium for this
“additional” coverage is a one-time payment, the additional insurance is
designed to continue for life. Thus becoming a “Paid Up Addition”.
Critical
Illness Insurance: This is a lump sum payment made
to the life insured following the diagnosis of one of the covered illnesses. The
most common illnesses are: heart attack, life threatening cancer, and stroke.
Up to 30 illnesses are commonly found in a CI policy.
Disability
Insurance: A policy designed to pay the life
insured a specific amount of money per month to replace lost income caused by a
disability which prevents the life insured form working. A disability policy
may hold a wide range of definitions. For example: an “any occupation”
definition would pay only if the life insured cannot work at “any” job. An “own” occupation would pay a benefit if the
life insured were unable to work specifically in their own occupation rather
than “any” occupation.
If you are in Nova Scotia and would like
some insurance advice, please contact Corry Collins:
902-444-7000
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