Life Insurance Terms

Agent - An insurance company representative licensed by the state that solicits and negotiates contracts of insurance, and provides service to the policyholder for the insurer. An agent can be independent and represent at least two insurance companies or a direct writer who represents and sells policies for one insurer only.

 Beneficiary - The person named in the policy to receive the insurance proceeds at the death of the insured. Anyone can be named as a beneficiary.
Cash Surrender Value - The amount available in cash when there is voluntary termination of a policy by its owner prior to it becoming payable by death or maturity. The amount is the cash value noted in the policy minus a surrender charge, any outstanding loans and additional interest.
Face Amount - The amount noted on the face of the policy that will be paid in the event of death or at the maturity of the policy. It does not include extra amounts payable under accidental death or other special provisions obtained through the application of policy dividends.
Life Expectancy - The probability of a person reaching a certain age according to a particular mortality table. This is the starting basis in calculating the pure cost of life insurance and annuities and is noted in the basic premium.
Non-Participating - A life insurance policy whereby the company does not distribute to policy owners any portion of its surplus.
Participating Policy - A life insurance policy whereby the company agrees to distribute to policy owners the portion of its surplus that its Board of Directors determines is not required at the end of the business year. The distribution serves to lessen the premium the policy owners had paid.
Policy Proceeds - The figure actually paid on a life insurance policy when one passes or when the policy owner obtains payment at surrender or maturity.
Rating - The basis for an added expense to the standard premium due to the fact the person insured is classified as a higher than normal risk usually resulting from impaired health or a hazardous occupation.
Settlement Options - The various ways, other than immediate payment in cash, in which a policyholder or beneficiary can select to have policy benefits paid. These options generally include the following:
  • Interest Option - death benefit left on deposit at interest with the insurance company with earnings paid to the beneficiary annually.
  • Fixed Amount Option - death benefit paid in a series of fixed amount installments until the proceeds and interest earned terminate.
  • Fixed Period Option - death benefit left on deposit with the insurance company with the death benefit plus interest paid out in equal payments for the period of time selected.
  • Life Income Option - death benefit plus interest paid through a life annuity. Income continues under a straight life income option for as long as the beneficiary lives or whether or not the beneficiary lives, under a life income with period certain option.
Standard Risk - The classification of a person applying for a life insurance policy who meets the physical, occupational and other standards on which the normal premium rates are based.
Substandard Risk - The classification of a person applying for a life insurance policy who does not fit the requirements set for the standard risk. An added premium is charged on substandard risks to provide for the probability that such a person will have a shorter life span than a standard risk.
Supplementary Contract - An agreement between a life insurance company and a policy owner or beneficiary whereby the company retains at least a portion of the cash sum payable under an insurance policy and makes payment in accordance with the settlement option chosen.


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