Skip to main content

Insurance Definitions

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 definitions 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:
corry@maritimewealth.com
902-444-7000


Please like, share and comment on Corry’s newest post!

Comments

Post a Comment

Popular posts from this blog

Attend MDRT as an Aspirant or Manager

The Million Dollar Round Table (MDRT) holds its annual meeting this June in Orlando. Members from around the world will be in attendance. The annual meeting is the flagship event for the MDRT. Top advisors from over 70 countries meet and share world class ideas on how to grow your business and how to develop a thriving practice. The main platform is always full of motivation, business ideas and stories that may change your life. Ten thousand people are expected this year. The focus sessions are detailed sessions drilling down on the specifics of specialized subjects. Members and non-members are invited to speak on their area of speciality. Networking with leading industry people (who become friends) is one of the highlights. The mentoring program at MDRT provides a chance for non-members to attend as a guest.  The rules can be found at https://www.mdrt.org/membership/mentoring/ , but here are some of the particulars: The MDRT Annual Meeting scheduled for June 4-7, 20...
Post a Comment
Read more

How Long Will 1 Million Dollars Last?

Once upon a time, a million dollars was a large sum of money. If you had it, you were a millionaire, and everyone was jealous. Today the question is often asked: “if you won a million dollars, would you quit work?” Well the answer depends on several factors like your age, your need for money, and even your health. To answer the question how long would one million dollars last, let’s look at it this way: How long will $1,000,000 produce an income for you before it runs out? Let’s say you needed to take $60,000 as an annual income to spend. Let’s also say that you wanted to increase that $60,000 by 2% per year just to keep up to inflation. To run the numbers, we would assume you wanted to invest your $1,000,000 in a relatively secure place. The rate of interest would be around 1.5% if you wanted a guaranteed return, or maybe a 5% return if you wanted to assume some risk. For argument sake, let’s give you 3.5% over time, and income tax at about 25%. With the above parameters, you...
Post a Comment
Read more

Created by: Corry Collins - Top 10 Fall Financial Checklist - Save Time, Money and Tax.

Summer is not officially over until September 21 st . However, “back to school” week is a sure sign of the fall! The fall is a busy time in our financial planning office, as people seem to use this time of year to tidy up many small items concerning everything financial. It might also be a good time of year for you to do the same, especially if you aren’t in this “fall time” habit. Many people have a list of items to refer to when it comes time for financial clean up. Here is a typical list:       Update beneficiaries on your insurance policies’ if required.       Increase your disability coverage if your income has increased.       Review your RRSP investments against your current Risk Tolerance questionnaire.       Top up your Tax Free Savings Account       Increase your RRSP deposits by 10%       Question your bank to see if you can save money by renewing your mortgage ea...
Post a Comment
Read more