(Registered Reps Only)
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Variable Life differs from whole life insurance and universal life insurance in that policy owners direct the distribution of their premium payments among several different accounts or funds rather than by the company’s choosing. Typical account choices for variable life are common stock, bond, mortgage, and money-market accounts. With this type of policy, the death benefit and cash value benefits vary in relation to the value of the investments underlying the policy. If the value of the account increases, so will the benefits; if the value of the account decreases, so will the benefits, subject to a minimum guarantee. Variable life insurance is more risky to the policy owner than the other forms of cash value insurance, but there is a much greater possibility of greater returns.
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Variable Universal Life Insurance combines the flexibility of universal life insurance with the investment account features of variable life insurance.
Glossary of Life Insurance Terms
Accelerated Benefit Provision – A provision in many new policies which will allow the policy owner to receive a portion
of the death benefit early if the insured person is diagnosed with a terminal illness or permanently confined to a nursing
home.
Accidental Death Benefit – A rider added to a policy that provides an additional benefit if the insured dies from
accidental causes.
Certificate – A document provided to a person insured under a group insurance policy that provides evidence that the
coverage exists.
Evidence of Insurability – Medical and other information about a person applying for insurance that the life insurance
company keeps confidential, but uses to decide whether the policy can be issued and what premiums will be charged.
Face Amount – The amount to be paid to the beneficiary when the insured dies. It will be reduced by any unpaid policy
loans and interest on those loans, and may be increased by any dividends.
Free Look – The right of the policyowner to have a period of ten or more days to examine an insurance policy, and if not
satisfied, return it to the company for a full refund of all amounts paid.
Grace Period –A period of time (usually 31 days) after the premium due date when an overdue premium may be paid
without penalty. The policy remains in force throughout the period.
Guaranteed Insurability – An option that permits the policyholder to buy additional stated amounts of life insurance at
certain times in the future, without having to provide new evidence of insurability.
Illustration – A document used in life insurance sales presentations showing year-by-year numbers indicating how a
policy will work. Usually it assumes that amounts being paid today will continue in all future years.
Insured – The person whose life is covered by a life insurance policy; the policyowner; the policyholder.
Lapse – The discontinuation of insurance without cash value when the required premium is not paid. If cash value
exists, there may be nonforfeiture provisions available.
Loan Value – The amount which can be borrowed by the policyowner from the company using the value of the policy as
collateral. Usually the interest rate payable on the loan varies based on an index defined in the policy.
Mode of Premium Payment – The frequency of premium payments during the policy year. Premium payments can
usually be made on annual, semi-annual, quarterly, or monthly mode.
Mortality Table – A statistical table showing the death rate (probability of death) for each age.
Nonforfeiture Options – A provision in the policy that allows the policyowner to choose how the cash value of the policy
will be used if the policy is surrendered or lapses due to nonpayment of premium.
Ownership – All rights, benefits, and privileges under a policy controlled by the owner, who is usually the insured.
Ownership may be transferred or assigned to someone else by written request of the current owner.
Paid-Up Insurance – A life insurance policy where all premiums have already been paid, with no further premium
payment due.
Participating Insurance – Insurance on which the policyowner is entitled to share in the surplus earnings of the
company through dividends, which reflect the difference between the premium charged and the actual earnings and costs
of providing coverage.
Policy – The printed document issued to the policyowner by the company stating the terms of the insurance contract.
Policy Year – A one-year period starting on the day and the month the policy was issued. The first policy year starts on the date of issue, and ends on the day before the policy’s first anniversary date.
Premium – The payment a policyowner is required to make to an insurance company to purchase insurance coverage and to keep the policy in force.
Rated Policy – A policy issued with an additional premium to cover the extra risk involved if an insured has impaired health, a hazardous occupation or hobby, or is a private pilot.
Reinstatement – The restoring of a lapsed or surrendered policy to full force and effect. The company requires evidence of insurability and payment of all amounts necessary, including interest, to put the policy into the condition it would have been in had the lapse or surrender not occurred. The company is not obligated to reinstate a policy.
Rider – A provision added to a policy that provides additional benefits, usually accompanied by a corresponding premium increase or change.
Settlement Option – The manner in which the insured or beneficiary may choose to have the policy proceeds paid.
Suicide Clause – A policy provision which reduces or eliminates the amount to be paid if the insured dies from suicide within the first two policy years.
Standard Risk – The classification of an applicant for a life insurance policy who fulfills the physical, occupational, and other requirements on which most of the company’s policies are issued. Someone whose characteristics are more favorable may be classified as a "Preferred Risk." When the characteristics are less favorable, the applicant may be characterized as "Rated" or refused coverage altogether.
Surrender – To voluntarily terminate or cancel a policy for its cash value or other nonforfeiture options.
Underwriting – The process of evaluating applicants for insurance and classifying them fairly, so the appropriate premium rate may be charged. This may involve a physical examination of the applicant.
Waiver of Premium – A rider added to policy that will waive the premium payments required by an insured during the total disability of the insured.
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