Final Expense Insurance Terms
ACCELERATED DEATH BENEFIT RIDER
An add-on to a life insurance policy that pays out a portion of the death benefit while you are still alive if you are diagnosed with a terminal illness. An accelerated death benefit rider is paid out under specific circumstances — typically when death is imminent..
ACCIDENTAL DEATH AND DISMEMBERMENT
A policy add-on that pays out additional compensation — up to the full amount of the death benefit — if either the insured’s death is the result of an accident or he or she loses a limb because of an accident. Unless the insured individual has a high-risk job or avocation, it’s usually not worth the extra cost, as the accidental death and dismemberment rider is rarely paid out by insurance carriers because of restrictions on the rider.
AGE
For life insurance purposes, the age in years of an applicant or insured. Some companies us the age at the last birthday, while others use the age at the nearest birthday, prior or succeeding.
AGENT
Anyone who solicits insurance or aids in the placing of and delivering of insurance policies and/or the collection of premiums on behalf of an insurance company
ANNUAL PREMIUM (AP)
The total premium amount due on an annual basis to meet the contractual requirements of an insurance policy and to keep it in force.
APPLICATION
A form supplied by the life insurance company and usually filled in by the agent and medical examiner (if applicable) on the basis of information received from the applicant. The form is signed by the applicant and becomes part of the insurance contract if a policy is issued. The application is reviewed by an insurance company underwriter to consider whether the requested policy will be issued and, if so, in what classification and at what premium rate.
APPOINTMENT
The authorization of an agent to represent an insurance company. An agent must be appointed by the insurance company in the state(s) business is being written in order to submit a client’s application to the insurance company. In some cases, the insurance company will permit agent contracting paperwork to be submitted along with the first application in that state.
APROVED
A term referring to an application for life insurance being approved and accepted by the insurance company. The application can either be approved as applied, which means the health class and premium approved matches the original quote; or; approved other than applied, which means your health class and premium will differ from your original quote. This is usually due to information attained by the medical examiner and/or underwriter, which places the applicant in a different health class than what was applied for.
ATTENDING PHYSICIAL STATEMENT
If an underwriter decides it’s necessary to take a closer look at your health, either because of something you disclosed on the application or because of the results of your paramedical exam, then you will need to submit a written summary of your medical history from your doctor or hospital. This document is called an APS, or “attending physician statement.”
AVOCATION
An avocation is a hobby or minor occupation, like skydiving, scuba diving, or snowboarding. Certain avocations are considered a higher risk and may result in higher rates when applying for life insurance. How much more you spend on life insurance is typically determined by how often you participate in the activity or how risky it is.
BACK DATED
Some insurance companies allow policies to be dated earlier than the actual date issued in order to save age. By underwriting at a younger age, the premiums will typically be lower than if the policy is dated at the actual date. However, take note that premiums will be due from the date on the policy, not the actual date
BENEFICIARY
A beneficiary is the recipient of a life insurance policy’s death benefit. This can be one person, several people, or an organization, as determined by the life insurance policyholder
BINDING RECEIPT
The receipt for payment of the first premium, which assures the applicant that, if he or she dies before receiving the policy, the company will pay the full claims if the policy is issued (or would have been issued) as applied for.
BROKER
In insurance, one who places business with more than one company and who has no exclusive contract requiring that all his or her business first be offered to a single company. Unlike the agent, who is considered to represent the company, the broker usually is considered as representing the buyer.
BURIAL INSURANCE
A general term usually referring to a small policy of life insurance ($5,000 to $25,000) intended only to meet the final expense needs of the insured.
CARRIER
In insurance, another term for insurer, used because the insurance company assumes or carries the risk for its policy owners
CASH VALUE
The amount of money received should the policyholder decide to give up the protection provided by a policy.
CHARITABLE TRUST
A trust designed for the benefit of a class or the public generally. Is is essentially different from a private trust in that the beneficiaries are not designated individually.
CHILD RIDER
A rider is an attachment to a policy that adds something to the policy (as opposed to being established in the body of the policy). A child rider allows parents to purchase life insurance for their children (all in one rider), without having to purchase a separate policy for each child.
COLLATERAL ASSIGNMENT
In insurance, the assignment of a policy to a creditor as security for a debt. Under a collateral assignment, the creditor is entitled to be reimbursed out of policy proceeds for the amount owing to him or her; the beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured’s death
CONDITIONAL COVERAGE
life insurance is coverage that begins as soon as you sign an insurance application. Basically, it means that you are covered by your insurance policy immediately — provided that the insurance company’s underwriters approve your application.
CONTESTABLE CLAUSE
That section of an insurance contract which states conditions under which the policy may be contested or voided. Also, see incontestability clause
CONTESTABLE PERIOD
The period of time during which an insurer may contest a claim on a policy because of misleading or incomplete information furnished with the application.
CONTINGENT BENEFITIARY
In life insurance, an alternate beneficiary designated to receive payment, usually in the event that the original beneficiary has died before the insured. Also, sometimes referred to as a secondary beneficiary.
CONVERTIBLE PRIVILEGE
In life insurance, some term policies provide that they may be converted to permanent forms of insurance without medical examination or underwriting if conversion is made within a limited period as specified in the policy
ENDOWMENT POLICY
A life insurance policy in which the cash value and face value are equal to each other at the policy’s maturity date; a policy under which the face amount is payable on a specified future date (maturity date) if the insured is then living, or at the insured’s death, if that should occur sooner
EXAMINATION
The medical examination of an applicant for life insurance, typically consisting of blood pressure readings, blood and urine specimens, height and weight measurement and medical questionnaire. In some cases (older ages and larger death benefit), an EKG and other tests might be required
FACE VALUE
For any life insurance policy, the face value is the death benefit. This is the stated dollar amount that the policy’s beneficiaries receive upon the death of the insured. In most cases, the face value is transferred to the beneficiaries tax-free..
FREE LOOK PERIOD
A specified period of time in which the insured can keep the policy for review and, if then decides to return the policy, a full refund is given. The free-look period varies by company and state, so make sure to check the free-look terms when you receive your policy
GRADED COVERAGE
A graded benefit policy is one that pays a lower amount if death occurs during the first few years after the policy is purchased
GUARANTEED ISSUE
is a small whole life insurance policy with no health qualifications. … Compared with other types of life insurance, guaranteed policies generally have high premiums relative to their death benefits because their policyholders are in poor health
HEALTH CLASS
Life insurance companies factor in health and lifestyle information to determine the risk insuring you would present to them. In order to determine premiums based on different degrees of risk, the insurance companies have established health (or risk) classes. There are no industry standards, but the health classes are typically Preferred Plus, Preferred, Standard Plus and Standard for non-tobacco users. Below these classes are sub-standard (or rated) categories. There are also separate classes for tobacco users.
IMPARED RISK
In life insurance, a person who has an unfavorable health condition, or is exposed to an above-average occupational hazard, which makes him/her a substandard risk. A risk that is substandard or below average
INCONTESTABLE CLAUSE
In life insurance, a contract clause which provides that for certain reasons, such as misstatements on the application, the company may not contest the payment of benefits (assuming premiums have been paid) and the policy has been in force during the lifetime of the insured for a certain period, usually two years after issue.
INFORCE
In life insurance, a term denoting that a policy has been issued, premiums are current and coverage is in place
INITIAL PERIOD
In life insurance, the first mode premium, generally payable with the application or upon delivery of the policy
INSURABILITY
In life insurance, all conditions pertaining to an individual which affect his or her health, susceptibility to injury, as well as expectancy of life. These factors are considered in determining the amount of risk. If the risk is too high, the insurer will refuse coverage
INSURABLE INTEREST
An insurable interest is an object which, if damaged or destroyed, would result in financial hardship for the policyholder. To exercise insurable interest, the policyholder would buy insurance on the person or item in question
INSURANCE
Protection, through specified monetary compensation or reimbursement for loss, provided by written contract against the happening of specified chance or unexpected events. The contractual relationship which exists when one party, for a consideration, agrees to reimburse another for loss caused by designated contingencies (e.g. death). The first party is called the insurer; the second, the insured; the contract, the insurance policy; the consideration, the premium; the property in question, the hazard or peril. The term assurance, common in England, is ordinarily considered identical to, and synonymous with insurance.
INSURED
The individual or group covered by the contract of insurance.
INSURER
The company granting the insurance