Understanding Life Insurance

Life insurance offers a way to provide for your loved ones. It pays them a sum of money that may help protect them from the financial impact of your passing. Life insurance can be an important aspect of retirement planning—helping bring peace of mind and financial security for your family.

Life insurance can help protect your family’s future by providing funds to pay off debts and final expenses, replace lost income, and transfer wealth.

Finding a policy that’s right for your needs is easier when you know the types of life insurance that are available and what they're designed to do. Answer some important questions when deciding which type and what amount of life insurance is right for you:

• What do you want the insurance to cover?
• What amount of coverage do you need?
• How long will you need the coverage?

Step one in obtaining life insurance is completing an application. Our underwriters will review your medical history to determine if your application is acceptable and to identify your risk classification. You may need a medical exam. In general, the younger and healthier you are, the lower the cost of life insurance.

Some life insurance policies go through underwriting, which is the process of assessing risks faced by the insured. Premiums may vary based on the type of life insurance plan chosen (i.e., term, whole life, universal life). Your premium amount will be determined in part by the amount of insurance coverage you request, your age, gender, and risk classification. Additional risks that can impact cost include tobacco use, health/medical history, and risky hobbies/jobs.

• Beneficiary: This is the person or people named to receive the death benefits of a life insurance policy. A contingent beneficiary is a backup in case the primary beneficiary isn’t available.
• Claim: A life insurance claim happens when the insured dies and the beneficiary notifies the life insurance company that it needs to pay death benefits.
• Death benefit: When a policyholder dies, their beneficiary receives a sum of money called the death benefit, also known as face value, face amount, or payout. Policies must be in effect and up to date to ensure payments for death benefits are made. Many people wonder, Is life insurance taxable? Generally, death benefits paid to beneficiaries are not subject to income tax.
• Final expenses: These are items and services related to death, such as medical bills, funeral arrangements, and legal fees.
• Insured: The person whose life is being covered under the life insurance policy, also known as the policyholder or policy owner.

• Burial insurance: If you’re wondering how burial insurance works, this coverage is a type of life insurance for seniors, typically available to adults ages 50 to 85. It provides proceeds that can help cover the costs of a funeral and is often referred to as final expense insurance, designed to ease the financial burden of end-of-life expenses.
• Guaranteed acceptance life insurance: This coverage is typically geared toward people ages 50 to 85. Acceptance is guaranteed regardless of health or pre-existing conditions.
• Juvenile whole life insurance: Juvenile whole life insurance insures the life of a minor with coverage that can be kept for their lifetime.
• What is Term life insurance?: Term life insurance offers temporary coverage for a set number of years and level premium payments.
• Learn more about term life insurance here.
• Universal life insurance: The benefits of universal life insurance include lifelong protection and the unique flexibility to adjust coverage and premium amounts. The policy’s cash value accumulates tax-deferred and can be used for any purpose to meet financial goals.
• Variable life insurance: This is a form of permanent coverage that provides the opportunity to build cash value with returns based on the performance of selected investments.
• Whole life insurance: This coverage offers lifetime protection that builds cash value at a guaranteed interest rate. Permanent life insurance can help cover long-term needs, such as paying for final expenses, supplementing income, or paying off debts.

• Evidence of insurability: Whether it’s proof of someone’s health, finances, or job, evidence of insurability helps insurers decide if someone is eligible for a life insurance policy.
• Exclusions: This is a situation or circumstance that prevents death benefits from being paid. For example, certain causes of death may not be covered by some policies.
• Grace period: When someone doesn’t pay their life insurance premium on time, their policy may enter a grace period, which gives them extra time to pay before the policy is canceled. Grace periods are often 30 days.
• Life expectancy: For life insurance, this is the statistical age that a person is expected to live based on data.
• Limited benefit period: This is a waiting period at the beginning of some life insurance policies, during which they won’t pay benefits if the insured dies. After the period, the policy can pay. For example, a two-year limited benefit period means a life insurance policy can pay death benefits after a two-year waiting period.
• Lump sum: Life insurance death benefits are often paid all at once in a lump-sum payment.
• Nonforfeiture: A life insurance nonforfeiture clause may allow the insured to receive full or partial benefits or a partial refund of their premiums after a lapse in payment.
• Premium payments: This is the amount a policyholder pays to the insurance company for their coverage. Premiums are often paid monthly or quarterly.
• Standard risk: This is the risk that an insurance company considers common or normal. Standard risk typically qualifies for standard premiums without special restrictions.
• Underwriting: Underwriting is the complex process that happens after someone applies for life insurance. The insurance company considers their age, health, and other factors to determine the terms of their coverage, including the death benefit and premiums.
• Unit of coverage: Some policies are sold in units of coverage. A unit could be a fixed death benefit amount or a fixed premium amount.

• Accelerated death benefit (ADB): This allows a life insurance policyholder to receive a portion of their death benefit while they’re still living if they’re certified by a doctor as terminally ill. Any ADB paid is usually deducted from the value of the death benefit.
• Learn more: Understanding the Accelerated Death Benefit
• Benefit rider: These are extra benefits a policyholder may add to a life insurance policy at extra cost. For example, a waiver of premium rider could suspend premium payments if the policyholder becomes critically ill, seriously injured, or physically impaired.

• Cash value: Some types of life insurance have a savings component that earns interest and can help people achieve financial goals. Cash value may be available to withdraw or borrow against.
• Cash surrender value: On policies that earn cash value, this is the amount a person receives if they voluntarily terminate their policy before death or before the policy matures.
• Collateral assignment of life insurance: Collateral assignment of life insurance occurs when someone uses their life insurance policy’s value as collateral to secure a loan. If they default on the loan or pass away before repaying the entire balance, the lender receives a payout from the policy.
• We hope this glossary gives you more confidence when it comes to making important life insurance decisions. Life Insurance Awareness Month is a great time to give your life insurance coverage a check-up. Do you have enough coverage to meet your family’s needs, or is it time to consider coverage for the first time?