Insurance, like any industry, has its own vocabulary. Life insurance terms may be especially confusing to a layperson, since many more familiar with other insurance products. Check out this guide to common but often misunderstood insurance terms.
Actual Cash Value
The actual value of insured property, rather than the replacement cost. Generally the actual cash value is the original cost, minus depreciation.
The person who analyzes risks and calculates the cost of premiums.
The person who investigates claims and estimates the amount of damages the insurance company owes.
The total amount the insured can receive on a single claim or multiple claims during a policy period.
A contract specifying the amount and frequency of a payout, over a particular period of time, to one or multiple persons; usually applicable with life insurance.
Certificate of Insurance
A document that provides verification of coverage. This may be required to purchase a car or rent an apartment.
A statement describing the covered property and the conditions it will be subjected to. A declarations page may list specific details about the insured property, how it will be stored and expected mileage per year.
The amount that will be paid out upon policy maturity or death of the insured.
A clause in an insurance contract that limits the amount of time the insurer has to void the policy, on the grounds of application misrepresentation.
Indemnification (Principle of Indemnity)
The idea that, post payout, the insured should be returned to a state akin to the pre-loss state.
Coverage protecting property that may be held in different locations, such as construction equipment that moves from place to place, live animals, or antiques or artwork that may travel for display.
Joint and Last Survivor Annuity
A retirement insurance that continues to pay out as long as one of two or more insured parties is living.
A retirement insurance that ceases to pay out when one of two or more insured parties is deceased.
Level Premium Insurance
A life insurance product where the premium remains the same throughout the entire term of the policy.
Insurance that guarantees the same payout, whether the insured dies during the term of the coverage or remains living when the policy expires.
A life insurance contract in which a policyholder agrees to sell or transfer ownership of the policy to a third party, usually for less benefits than would be paid out upon the death of the policyholder.
Limited Payment Life Insurance
A whole life insurance policy that does not exceed a set number of premium payments, regardless of how long the policyholder lives.
Living Benefits Rider
A rider attached to a life insurance policy that pays for long-term care benefits in the case of a chronic or terminal illness.
Behavior on the part of the insured that increases the risk of peril.
Named Peril Coverage
Coverage for specific, named events that may cause loss.
Anything that can cause property damage or bodily injury.
Permanent Life Insurance
A policy that remains active for the entire life of the insured.
The money that paid over a specified period of time to keep the policy current.
Renewable Term Insurance
Insurance that can be renewed at each term’s end, without any additional steps taken, such as additional medical exams.
An amendment to a policy agreement, generally specifying additional coverage.
The legal right of an insurance company to bring a liability suit against a third party, in order for the company to reimburse their payout expenses.
Life insurance that only pays out if the policyholder’s death occurs within a specified term, such as within a set number of years or before a specific age.
Similar to an actuary, this person analyzes risks and calculates the cost of premiums. However, the underwriter makes the final call as to whether or not the company will issue a policy.
Variable Life Insurance
Life insurance whose value and payouts vary, based on underlying securities (stocks and bonds).
Life insurance that lasts a person’s entire life and pays out upon their death.
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