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:
902-444-7000
Please like, share and comment on Corry’s newest post!
Comments
Post a Comment