Life Insurance - Types of Policies

Definitions:

Insured - The person the life policy is insuring for death

Insurability - The acceptabilty or non-acceptability of an insured as a candidate for a life insurance policy.

Beneficiary - The beneficiary of a policy can be a person, estate, group of people, entity (trust or organization) etc. Basically its who or what the policy face amount is paid to upon the insured persons death.

Face Amount - The amount of money the Life Insurance policy the insurance company pays to the beneficiarys in the event of the insureds death.

Policy Term - A pre-specified amount of time. Generally in years. Common timeframes for life insurance policies are 5, 10, 15, 20 and 30 years. Other options may be available, these are merely the most common.

Renewable Term Insurance - A kind of rider or option on a Term Life policy that will allow the insured to be renewed upon expiration of the original policy. Some conditions may apply such as Insurability.

Permanent Insurance - Generally speaking, this is any type of life insurance policy that isnt a "Term Life" policy and is intended to last the life of the insured. Most of the time, the life of an insured ends (in insurance terms) at age 95. This doesnt of course mean that everyone must die by that age. It just means that the Actuaries dont expect a person to live beyond that age.

Return of Premium - The amount of premium paid to the insurance company is returned upon expiration of policy if the insured survives the term agreed upon in the contract.

Cash Value - Also referred to as "surrender" value. This is an account that contains an amount of money stored that accrues interest at a given rate depending on the type of policy. Term policies do not have cash value. Whole life, Universal Life and Variable Life policies generally have some kind of cash value attached to them.

Interest Rate - The percentage at which the cash value of a policy increases based. Generally referred to as an APY or Annual Percentage Yeild.

Dividend - An amount of money awarded to the Cash Value of a life policy. Dividends are never guaranteed.

Separate Account - A term for Variable Universal Life insurance policies. Very similar to the Cash Value of the Universal Life policy.

Policy Owner - The person or entity that owns the policy. This doesnt always have to be the insured or the beneficiary. However the owner is the only person or entity whom is authorized to make changes to the policy. Generally the only things that can be changed are, mailing address, billing and beneficiaries.

Rider - Riders are extras that can be added on to a life policy. There are an infinite nubmer of potential riders that an insurance company may include or offer on a policy! Some of which could be, Return of Premium, Spousal, Accidental Death/Dismemberment, Critical Illness etc.

Insurable Interest - This is the technical reason a person is listed as the beneficiary on the life policy. Family members generally have an unlimited insurable interest in other family members. You can sometimes define this as: Could the beneficiary suffer financial hardship in the event of the insureds death? By that type of definition, Business Partners as well as Co-Habitants could have insurable interest in each other.

Level Premium - A type of payment method where the premium due on each installment is a "Level" amount. Generally the amount is more than on a common premium payment method because a little bit of a buffer must be added in to account to keep the premium consistent.

Loan or Policy Loan - An amount of money that is granted based upon cash balance or value of the life insurance policy. Sometimes the loan is paid back with interest and the interest is paid back to the account. The most common maximum amount of a policy loan is 50% of the value. This loan value must be paid back in full when cashing in the balance on a life policy.

Paid Up - This refers to an insurance policy that will never require another payment to stay in force.

Term Life Insurance

Term Life is a life insurance policy that pays the beneficiaries of the policy in the event the insured dies within the specified limit or "Term" agreed upon in the Life Policy contract. If the insured does not die within the timeframe, the policy expires and the premium paid is generally lost. Unless the policy contains a clause for return of premium.

Whole Life Insurance

Whole Life Insurance is a life policy that is designed to continue to Age 95 for person insured. However a Whole Life policy has a Cash Value which accumulates premium. The cash value of the policy increases at a specified rate of interest, this is the only policy that generally has a guaranteed interest rate of return on the cash value.

Universal Life Insurance

UL or Universal Life Insurance is a type of life policy that was designed after the Whole Life Policy. It also has a Cash Value and accumulates interest. The rate of interest on this type of policy may or may not be guaranteed by the insurance company that writes the policy. Often you will see this type of policy with a minimum possible interest rate but no cap on what the maximum can be. These policies are also designed to last until the insured is Age 95.

Variable Universal Life Insurance

VUL or Variable Universal Life Insurance is another type of life policy that is designed to last until the insured is aged to 95 years old. VUL's can pay a much higher rate of return because the cash account or separate account value can increase based on the performance of the underlying funds in which they lay. Many VUL's offer the option using of investment vehicles such as Mutual Funds. The issue with a VUL though is the downward risk is infinite. It is possible to lose the entire separate account due to market fluctuation.

Life Insurance Points of Interest

Never use Life Insurance Policies as an investment! They should only be used in conjunction with an entire financial picture. Speak to a Financial Advisor to determine your Life Insurance needs before purchasing any Life Insurance Policies.

The Death Benefit of a Life Insurance Policy can be completely non-taxable! This can make it a very useful tool in relation to estate planning.

The longer the time horizon a life (non term life) policy has, the longer it has to accumulate a cash balance and grow with interest.

The younger and healthier the insured is the lower the premium will be.

The beneficiary often must meet "Insurable Interest" requirements to be able to have themselves listed on the policy as such.

www.lifecoverpro.com: Life Insurance Companies

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