When it comes to life insurance, the simplest type is term life insurance. This form of life insurance is for temporary circumstances which cover the insured for a certain fixed period of time. Usually the cost of the premium increases as the insured gets older. Just like other types of life insurance policies, term life insurance is a legal contract that is an agreement between the policy owner and an insurance company. Like other types of contracts, term life insurance has its own language. Becoming familiar with some of the more common terms for term life insurance can help you better understand just exactly what it is you are paying for when purchasing term life insurance.
Term Life Annual Renewable: This refers to term life insurance which can be renewed every year for fixed time periods. These periods are usually five, ten, fifteen, twenty or thirty years. The annual premium cost will increase each year, depending on the probability of benefits being paid. During the early years, this type of premium is usually inexpensive. However towards the term’s end, it can become quite expensive.
Beneficiary: this is the individual or individuals who get paid if the insured person on the policy dies.
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Cash Value: this refers to the money available from the life insurance policy that can be used for withdrawals and loans. There is no cash value on term life insurance. It only pays when the insured person dies or other types of conditions which are specified in the policy’s contract.
Convertible Term Insurance: this is term insurance which can be converted by the policy owner into whole life insurance without having to provide evidence for insurability.
Dividend: this refers to a cash payment that is given to the policy holder as a return on a portion of premiums paid and is based on different variables. Term life insurance doesn’t pay out any dividends.
Face value: refers to what the death benefit amount is that will be paid out. This doesn’t include any additional amounts which may be paid in the cases of accidental death and other special types of provisions in the policy.
Insurability Acceptability: is not usually an issue when it comes to term life insurance. It refers to the insured person being acceptable to an insurance company. Proving insurability might not be necessarily even when converting a term life policy into whole life insurance, but it will depend on the policy.
Insured: this is the individual whose name is on the policy. They are usually the policy owner but not always. If the insured person dies, then a benefit will be paid out to the insured’s beneficiary or beneficiaries from the term life policy.
Insurer: this is the insurance company that has issued the policy.
Level Term: This type of term life insurance has a premium guaranteed to stay the same during a certain time period, usually for ten, fifteen, twenty or thirty years. Longer level terms have more expensive premiums, because years when the insured will be older get averaged into the cost of the overall premium.
Policy Owner: this is the person paying the insurance policy premiums.
Premium Payments: these are the payments that are paid to the insurance company in order for the policy to remain valid.
Renewable Term Life: this is term life insurance that is valid for a certain state period. At the end of the term the policy holder can renew the policy for a certain number of terms and not have to prove insurability.
