Life Insurance Terms and Definitions
I am trying to keep this list as simplified as possible. These are the most common terms with definitions. As with any industry, this list could go on and on and on!
A.M. Best: Ratings represent a measure of a company’s overall performance. The basis for the rating is mostly quantitative analysis drawn from annual statements.
Attending Physician’s Statement (APS): Information provided by a proposed insured’s physician covering medical history and results of medical examinations. It is used to determine the appropriate underwriting classification for the proposed insured.
Beneficiary: A person(s) designated by the policy owner to receive the proceeds of an insurance policy upon the death of the insured.
Benefit Period: The maximum length of time for which benefits will be paid under the terms of the insurance policy.
Burial Insurance: A life insurance policy designed to provide just enough insurance to cover funeral and burial expenses.
Collateral Assignment: The pledge of a life insurance policy or its value as security for the repayment of a loan. The assignee receives rights that are superior to the rights of the original policy owner and beneficiary, to the extent of the obligation owed to the assignee.
Death Benefit: The dollar amount of coverage that is paid to the designated beneficiary(s) of a life insurance policy upon the insured’s death.
DMV Report: A report in regards to your Driving record. Most carriers will run a report and will look for excessive traffic violations or suspensions.
Electronic Funds Transfer (EFT): An arrangement in which premium payments are drawn from an insured’s bank account. This is also referred as Auto-Draft or Pre-Arranged Withdrawal (PAW or PAC).
Final Expenses: Expenses incurred at the time of a person’s death including funeral costs, probate costs, current liabilities and taxes.
Flat Extra: An extra dollar amount per $1,000 of insurance that is charged to cover any extra hazard or special risk such as aviation or hazardous activities. This is commonly referred to as Extra Premium.
Guaranteed Issue An insurance policy provision that allows a certain amount of insurance or type of insurance to be issued without medical evidence of insurability.
Insurance Policy: The physical, written document issued by an insurance company to the policy owner. The insurance policy represents the written contract between the insurance company and the policy owner.
Keyman / Business Life Insurance: Life insurance purchased for business rather than personal purposes. Examples are insurance owned by a business on the life of a key employee and insurance owned by a business partner on the life of another partner.
Medical Information Bureau (MIB): A service that compiles medical information and application history of individuals who have applied for insurance in the past. Most insurance companies check an applicant’s MIB report during underwriting. Here is what is on your MIB:
What Information does the MIB Collect?
- Credit information
- Medical conditions
- Medical tests and results
- Habits such as smoking, overeating, gambling, drugs
- Hazardous avocations and hobbies
- Motor vehicle reports (poor driving history and accidents)
The information collected by the MIB stays on file for seven years. If any of its members have requested your file in the previous 12 months, that will be listed with your records.
Paramedical Exam/Paramed Exam: A brief physical examination the insurer typically requires of applicants during the underwriting process. The exam is usually performed by a registered nurse at a time and location convenient to the applicant. The exam usually consists of measurements (e.g. height/weight, blood pressure, and heart rate), body fluid samples (e.g. urine, blood) and a medical history questionnaire. The insurance company pays for the exam.
Permanent Life Insurance: The type of life insurance that may provide coverage for the insured’s entire lifetime. Permanent life insurance policies may include cash value accounts, policy loans, surrender options/fees, etc. Examples are Whole Life Insurance and Universal Life Insurance. Most term life insurance policies can be converted to permanent life insurance policies.
Pharmacy Check: A data base record of prescription drug use by the applicant. Most insurance companies will run this report during the underwriting process
Rating Class: The appropriate price category to which an applicant qualifies according to an insurance company’s underwriting guidelines. Common rate classes are Preferred Plus, Preferred, Standard Plus, Standard and Substandard.
Simplified Underwriting: An underwriting process that applies a less strict analysis of risk factors.
Term Life Insurance: A life insurance product that provides death benefit protection for a specified period of time. The policy pays benefits only if the insured dies during the term.
Underwriting: The process of evaluating applications for insurance based on an established set of guidelines. Underwriting determines the risk associated with an applicant and either assigns the appropriate rating class for the policy or declines to offer a policy.
Whole Life Insurance: A type of permanent life insurance which provides a level death benefit upon the insured’s death, or a cash endowment upon policy maturity that is equal to the death benefit. Whole life insurance policies also accumulate cash values.