Life Insurance Dictionary
Genius James On Life Insurance Dictionary:
"I wrote this life insurance dictionary, so I could explain some of the terms that you may encounter on your way to taking out a life policy claim. Sometimes insurers use them on purpose, so you don't understand them, and they can sell you more add-ons, or policies you don't need. To prevent that, and get the best possible life insurance policy, or any other types of insurance, such as whole-of-life protection, income protection, over 50s life insurance, term life insurance, ...
With this dictionary and provided explained terms, I guarantee you better pay-out, smaller premiums and maximum protection life insurance can offer you, and your family.
I would also like to invite you to my life insurance blog, where you can find more insurance tips, help, and advice on how to beat life insurance companies in negotiating the best premiums for you and high sum lump for your policy beneficiaries at the end of the policy term."
A pre-existing condition is an insurance term that refers to an injury, illness, or health condition of an individual before they receive or sign up for an insurance policy. This can include asthma, cancer, diabetes, a heart condition, high blood pressure, and also less serious conditions, such as broken bones and even prescription drugs.
Your insurance company may refuse service based on any pre-existing conditions you have, depending on what they are. Although it may still be possible for you to buy life insurance, expect higher premiums and even lower death benefits compared to someone healthy and the same age as yourself.
Different insurers have different criteria regarding pre-existing conditions, so read your policy carefully before signing anything!
Don't withhold any information about your health from your insurer; otherwise, your family may not be able to put a claim on your policy when in need.
A breadwinner, also known as a wage-earner, is a person that contributes a larger portion of household income. In most cases, they are the person that provides for a single-income family. It is recommended that the breadwinner takes out a policy that covers at least ten times their annual salary. For example, if you spend £30,000 a year for your household and childcare, it is worth taking out a policy with a payout of £300,000. It may sound like a huge investment, but in fact, it will cost you around £10 per month, depending on your age and health. But that £10 can bring you peace of mind for the rest of your life. We recommend that every family has life insurance, but in cases of single-income families, we believe some sort of life insurance is a must!
Reviewable premiums are also known as unit-linked insurance. If you choose reviewable premiums, you give your insurer the option to change your monthly premiums over time. Usually, that happens after the first five years; however, it differs from insurer to insurer. Changes can be done because of the insurers' attitude towards risk-based activities, or they can be based on average claims, global economic factors, the fact that you are ageing, and more. This option may seem as the better one, as the initial premiums are much lower than guaranteed premiums, but it will become much more expensive as you age. Technically, these are whole life policies, but their premiums will become so high that it will be nearly impossible to afford them once you are older.
Taking out guaranteed premiums ensures that your monthly premium will stay the same during the entire term of your policy. In short, if your monthly premium is £10 per month at the beginning of your policy, your insurance company guarantees that this will not change, except if you change your policy in any way.
This is also known as swapping. It is an agreement between you and your insurer to change the terms of your policy. A good example of when it is worth changing the terms is if you were a smoker and you then decided to stop. It may save you a substantial monthly premium. But don't try to lie about it, as you risk your family not being able to put a claim on your policy.
In some cases, you can over-insure yourself. That can mean more than just one thing, but in general, it means you are paying too much for the cover you require, and you could save your money by reevaluating your policy. Sometimes, when a person has more than one policy, it can also mean that they have an item insured more than once under different policies.
This is a term we use for an add-on or adjustment to the original policy. Riders are designed to add additional benefits over the existing terms of your policy to tailor it to your needs. You can add coverage to the agreed amount, premium, and other terms you agreed upon signing your policy. There are several different types of riders. One example is an exclusion rider, which lists the hazards or perils that the insurer will not cover.
This rule enables you to gift property, assets, or money, so they can become non-taxable. Meaning, that if you pass on wealth to the next generation, it will be exempt from inheritance tax (IHT) if it was gifted at least seven years before you die. The amount of tax depends on when you give your gift and the time that passes between that and your death. For example, gifts that are given four years before your passing are taxed at 40%.
This is the amount of money paid all at once, as opposed to the amount that is divided into instalments. It may not be the best choice for you as a beneficiary, and it makes more sense if you annuitize it as periodic payments. Studies show that people that choose periodic payments are more likely to maintain their spending habits compared to those who take out a lump sum. On the other hand, a lump sum payment gives you more control over your money and the flexibility of investing it how you see fit.
The required period in which you, as a policyholder, can terminate it without confronting any penalties or surrender charges. Usually, this period lasts at least ten days, but this depends on your insurance company. It is there for your benefit, to give you more time to review your policy in-depth and give your attorney, company representative, and agent a chance to see if it fits your and your family's needs. If you decide to cancel your insurance policy, make sure to notify your agent or the company representative of your wishes and request.
Derived from the Latin word "premium," it means a reward or a prize. It is not a prize as such, at least not in today's world's meaning of the word. Instead, it is the amount of money that a business or an individual pays for life insurance, for example. In that case, your life insurance premium is the cost of your coverage.
The term refers to a contract issued and distributed by the insurance company, for example, where individuals agree to pay the company a certain amount of money. It can be paid as a lump sum or through a series of regular payments - instalments. Payments are usually limited to a specific time span, like 30 years. There are different types of annuities, such as fixed, variable, and fixed indexed annuities.
An economic valuation of all of the assets, investments, and interests of an individual. It includes one's personal belongings, intangible assets, land, furnishings, belongings, money… This is taken into account when calculating the estate tax once you pass away. You can exempt your insurance payout from tax by putting it in trust.
The entire process of administering a dead person's estate is called probate. This includes the organization of their assets, possession, and money. It also includes distributing these assets as inheritance, once the taxes and debts are paid. If the deceased left a will, they have usually named someone they have chosen to administer their estate.
Although the word itself has lots of meanings, our focus will be on the insurance niche. Simply put, it is an estimated cost provided to you by the insurance company for the policy you applied for. It helps you get a better idea of the price of a policy you are trying to purchase from particular insurers. We recommend getting more than one quote from different insurers to be sure you got the best possible deal.
As a basic insurance term, trust is a legal arrangement that leaves your insurance policy and other assets in the hands of people or the legal company you trust. Once you put a life insurance policy in trust, you no longer own this policy, but it is managed by the trustee on behalf of the beneficiaries you decided on. This is a way to avoid inheritance or estate tax and gives you some control over how your assets are managed once you die.
Grace period in insurance means a pre-defined amount of time when policy premium is due. It is meant for the protection of policyholders from immediately losing coverage in case you are late with the payment of your premium. The length of the grace period may vary depending on your policy and provider. When the grace period is in effect, the insurer will be responsible for any obligations in the contract. After that, he may cancel your policy due to non-payment. If that happens, you may encounter problems if you decide to take out a new policy as you might get flagged as a high-risk customer.
A predefined sum that the insurance company agreed to pay to you or your nominee in case the insured event is to happen or at the end of the insurance term. The amount in the premiums that you pay is decided against the sum assured value. With the right sum assured for your insurance cover, you can secure the financial future of your family if anything were to happen to you. Once the sum assured is paid, the policy ends.
If you have any questions, feel free to contact me.
"The beginning of knowledge is the discovery of something we do not understand."
A term commonly used with homeowners' or property insurance, which can also apply to other types of insurance. It is the maximum amount of money that an insurer is obligated to cover in the event of a covered loss. The sole purpose of it is to offer the feeling to policyholders as if no loss has happened. It can also be a protection against under-insurance in the case of inflation.
The rule of thumb is merely a guideline to simplify the rules that apply in most cases. It is not an exact science and does not have a theoretical foundation but is, in most cases, a result of practice and experience. It does not take into account individual circumstances. The most common known rule of thumb in the life insurance niche is to have at least five times your gross salary in the life insurance death benefits.
Also known as a guaranteed term, an annuity certain is an insurance contract that guarantees payments periodically with a predetermined amount and a fixed term. It was designed to pay a steady income stream over time. This will happen regardless of the life or death situation. If something were to happen to you, your beneficiaries would continue to receive payments on your behalf.
A contingent owner is the designated individual that takes over the policy in case the primary owner of the policy dies before the insured individual does. If this happens, the policy passes to the contingent owner, who will take over any death (or other) benefits from the policy from that point on.
Also known as a surrender fee, a surrender charge is a penalty usually charged to a policyholder upon cancellation of their life insurance policy. It is used for the insurers' safety, as an incentive for policyholders to maintain their contracts, and to reduce early withdrawals to a minimum. The surrender charges will reduce your surrender value of policy!
An insurance policy clause that covers the monthly premium in case a policyholder becomes ill, physically impaired, or is seriously injured. Insurers differ in their definitions of a disability, and the length of time during which a premium is waivered can also vary from policy to policy.
Usually, you will need to pay extra for any policy with a disability waiver of premium.
If you are to take out a loan at the bank, they may ask you to provide proof of life insurance, with which the loan would be paid off if you die. This can be helpful when you need a loan but do not have collateral to back it up. If your death were to come before the loan is paid off, the lender receives the amount owed through your life insurance death benefit, and the remaining amount is then redirected to other listed beneficiaries.
This is also known as a "Perm". It's a type of life insurance policy that offers both death benefits and cash value. We know two primary types of permanent life insurance, namely, whole life and universal life. The term refers to coverage that never expires, unlike term insurance, for example. This policy has favourable tax treatment as long as it remains active. Compared to term insurance, premiums for permanent life insurance are way higher, and this type of insurance is mostly taken out by people who have earned enough that they can afford it.
Terminal illness is also known as an end-stage disease or life-limiting illness. It is a condition that cannot be cured or sufficiently treated and will most likely lead to death. Different insurance companies may have different definitions of what terminal illness is, so watch out before signing any policy, especially if you have a family history of terminal illness. Some examples of the most common terminal illnesses are liver disease, dementia, HIV, cancer, ALS ...
Often referred to as a separation agreement or reparation benefit, this option is mostly included in joint life insurance policies. It allows you to split the existing policy into two policies in case of divorce or separation. Please note that not all providers offer this benefit.
Often mistaken for life insurance, it is a continuous type of insurance that lasts indefinitely and pays out a lump sum in the event of the death of the policyholder. More commonly known as a whole of life policy, it has higher premiums, compared to a regular life insurance policy, due to the providers' expectation to make a payout at some point.
ADB or accelerated death benefit is the assistance you get in case you are diagnosed with a terminal illness or disease. It is intended to help you get through treatments and help with any other costs that may appear. Deciding to use this option will reduce the amount of money your beneficiaries will receive after the policy has ended. It is also sometimes known as a living benefit rider or terminal illness benefit and can be available even if it is not specifically mentioned in your contract, depending on your insurance provider.
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The term insurance referral refers to the authorization of your indemnity plan if it is assessed that you may need a specialist, doctor, treatment, or a visit to the hospital. This may happen after you apply for life insurance. We recommend that before you make an appointment in a medical institution, you check with them if your insurance provider received a referral. Otherwise, you may encounter co-payments or plan deductibles.
Evidence of insurability or EOI is exactly what the name suggests - evidence that you can get a cover. Before the insurance company agrees to insure you, they will look at your age, health, job and other factors. Most insurance companies will use a basic questionnaire to verify your overall health before granting you a policy, but in some cases, they will go beyond the basic information provided in order to establish the risk of providing insurance coverage. This usually happens if you reapply for coverage after being initially refused, if you add a dependent on a policy…
Joint first-to-die refers to a type of joint life insurance policy most often purchased by couples to cover both spouses. Its purpose is to pay a death benefit to the survivor after one of the partners dies. In general, it is less expensive than two individual policies premiums-wise, but we would not recommend it, as it has many drawbacks. With some companies, you can't split the joint life insurance into two policies, which can cause problems in case of separation or divorce. In addition, it is often difficult enough to qualify for one single policy, but for a joint policy, both candidates need to qualify, and this can reduce your coverage substantially.
Joint last-to-die refers to a type of joint life insurance policy most often purchased by couples to cover both spouses. The biggest difference between this policy and the joint first-to-die policy is that the death benefit payout happens after the last of the two beneficiaries dies. This type of policy is more tailored to couples that want to protect their heirs from the cost of estate and inheritance taxes. However, similar to the joint first-to-die, we wouldn't recommend this policy because of its many drawbacks. With some companies, you can't split the joint life insurance into two policies, which can cause problems in case of separation or divorce. In addition, it is often difficult enough to qualify for one single policy, but for a joint policy, both candidates need to qualify, and this can reduce your coverage substantially.
In the world of insurance, a grace period means a predefined amount of time when a policy premium is due. It is meant to protect policyholders from immediately losing coverage if they are late with the payment of their premium. The length of the grace period may vary depending on the chosen policy and provider. When the grace period is in effect, the insurer will be responsible for any obligations in the contract. After that, he or she may cancel your policy due to non-payment. If that happens, you may encounter problems if you decide to take out a new policy, as you might get flagged as a high-risk customer.
Laddering is a technique used by many people to invest money into various securities. This method allows investors to purchase several smaller investments instead of investing in one large investment. By using this strategy, an investor can gain steady returns over time while still having some flexibility if things don't go as planned.
More about laddering can be found in this blog post HERE.
Otherwise called Maysir. Means risk or gambling. Al-maisir is banned in Islamic finance because it creates wealth through chance rather than wise decisions.
Takaful (sometimes also interpreted as "fortitud") is a cooperative arrangement for reimbursement or repayment in the event of a catastrophe, coordinated as an Islamic or Shariah-compliant option, and unlike ordinary insurance based on Islamic beliefs, ordinary insurance Insurance includes riba (usury) and gharar (unnecessary repayment). I wrote more about takaful HERE.
Churning occurs when an insurance specialist replaces a policyholder's insurance contract with another insurance contract, often without talking to the policyholder, and usually with no benefit to the contract in question. People who engage in this practice usually do so to earn extra commissions from the "new" policies they introduce. More about churning in my blog HERE.