LIFE INSURANCE TERMS AND DEFINITIONS:
- insurance – Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.
- life insurance – Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder).
- insurance policy – The insurance policy is a contract (generally, a standard-form contract) between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay.
- limited payment life insurance – a form of whole-life insurance with a predefined number of premiums to be paid.
- life settlements – a contract or agreement in which a policyholder agrees to sell or transfer ownership in all or part of a life insurance policy to a third party for compensation that is less than the expected death benefit of a policy.
- beneficiary – the person or entity receiving the death benefit at the death of the insured.
- cash value – The amount of total premiums paid for a policy minus the costs for insurance in whole-, universal-, and variable universal-life policies. The cash value
grows tax-free in an insurance policy. - death benefit– the total cash payment made to the beneficiary upon the death of the insured.
- insured – the person on whose life the insurance has been purchased. If the insured dies, a death benefit will be paid to the named beneficiary.
- owner – the person or entity who owns the insurance policy. The owner may or may not be the insured.
- premium – The amount billed to the owner of an insurance policy by the insurance company.
HISTORY
Insurance began as a way of reducing the risk to traders as early as 5000 BC in China and 4500 BC in Babylon. The first life insurance policies were taken on in the early 18th century in the UK. The first life table ever was written by Edmund Halley in 1693. A life table (also called a mortality table or actuarial table) is a table which shows what the probability that this person will die before his next birthday is for each age bracket. Life tables are the long-term mathematical way to measure a population’s longevity.
- Term life insurance – it is suitable for most people. It provides coverage at a fixed rate of payments for a limited period of time, typically 1 to 10 years, and may be renewable at the end of each term. It is the most basic and often least expensive form of life insurance for people under age 50. Also, the premiums will likely increase at the end of each term and can become prohibitively expensive for older individuals.
- Whole life insurance – Whole life insurance provides coverage for the life of the insured. In addition to providing a death benefit, whole life also contains a savings component where cash value may accumulate. These policies are also known as permanent or traditional life insurance.
- Universal life insurance (often shortened to UL) – It is permanent life insurance with an investment savings element and low premiums like term life insurance. A universal life policy is best described as term life insurance with an added cash value component.
- Variable life insurance – It is a permanent life insurance policy with an investment component. The policy has a cash value account, which is invested in a number of sub-accounts available in the policy. A sub-account acts similar to a mutual fund, except it’s only available within a variable life insurance policy. A typical variable life policy will have several sub-accounts to choose from, with some offering upwards of 50 different options.
TYPES OF LIFE INSURANCE IN USA
If you have made the decision to buy a policy, you may wonder which type of policy to choose, since there are several different types of policies.
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