Accelerated Death Benefit Rider: This provision is included  in many  life insurance policies and provides that, if the insured is diagnosed with a terminal illness, an Accelerated Death Benefit (ABR) claim can be filed. The life insurance company will pay a portion of the death benefit which can help with end-of-life expenses and medical bills.  Upon the death of the insured, the beneficiary will receive the remainder of the death benefit. The insurance company may charge a fee for administering the accelerated death benefit claim payment.

Beneficiary: The person who is named by the insured or policyowner to receive the death benefit upon the insured’s death. After a policy is delivered, the policyowner has at least 14 days to review it. If the policyowner is not satisfied with the policy for any reason, the policy can be returned for a full premium refund. No surrender charges can be applied during this period. The premium refund for indexed universal life policies will be subject to market valuation adjustments and the premium refund for variable life insurance policies will be the value of the investment accounts at the time the free look is exercised.

Grace Period: Entitles the insured a period of no less than 30 days to make the premium payment after the premium due date.

Incontestable Clause: A provision in a life insurance policy stating that after the initial 2-year period that a policy has been in force, the insurer is not allowed to contest a death claim for any reason.  The first two years is known as the contestable period. If a death occurs during this time, the company will order medical records to make sure there was no misstatements on the application. If the company finds the statements on the application do not match the medical records, and if the facts were known, the policy would have been issued for a different premium or not at all, the company will deny the claim and return the premiums paid.

Insurable Interest: Regarding life insurance, an insurable interest exists when the policyowner has a reasonable expectation that he or she will benefit from the continued life and health of the insured. The benefit is required to be either one of love and affection for and the insured, or a pecuniary benefit such that the policyholder benefits financially from the continued life and health of the insured. Business entities have an insurable interest in the owners of the business and key employees. Parties to a contract for the purchase or sale of a business entity have an insurable interest in the lives of all other parties to the contract solely for the purpose of the contract. Trust and trustees have an insurable interest in the trust grantor under life insurance policies owned by the trust when trust beneficiaries meet specified criteria.

Interpleader: Sometimes, due to the age of the policy and multiple beneficiary changes over the years, it is not clear who the rightful beneficiary is. Interpleader is a legal procedure through which a court determines the rightful beneficiary. The policy proceeds are deposited with  the  court and the court will determine the rightful distribution.

Life Settlement: A life settlement is the sale of a life insurance policy by a healthy person. The amount received for a life settlement will be less than the death benefit. The life settlement may create a taxable event for the policyowner. You should consult with a tax advisor for more information.

Non-Forfeiture Provision: A non-forfeiture provision is a State mandated requirement that in case the premium is not paid, policyowners do not forfeit the cash values of an insurance policy. If there is a lapse or surrender, policyowners have 60 days to choose the non-forfeiture option they want. If a choice is not made, the insurer will typically choose the extended term nonforfeiture option. The options for non-forfeiture are:

• Cash Surrender: the policyowner receives the amount of accrued cash value  less any surrender charges,  if applicable.
• Extended Term: the cash values are used to purchase extended term life insurance. The amount of cash value available at the time of policy lapse or surrender will determine the death benefit amount and length of time the extended term will be in effect.
• Reduced Paid-up Insurance: the policy will continue with a death benefit amount less than the original death benefit. The cash value is used to purchase a reduced paid-up policy based on the amount of cash value available at the time of lapse. No additional premiums are due as the policy is paid up.

Retained Asset Accounts (RAA): Sometimes, when a large death benefit is paid, the insurer will send a check book so the beneficiary can withdraw cash as needed. The death benefit is held in the insurer’s retained asset accounts. These are accounts life insurers use to hold beneficiaries’ proceeds until the beneficiaries withdraw the cash using a check, payment cards, or other means. If a beneficiary would like  to move the funds to their own account, they can do so by  writing a check. A beneficiary should be able to request a lump sum check if they prefer this method of payment.

Viatical Settlement: This is the sale of a life insurance policy by a terminally or chronically ill person (the viator) for an immediate lump-sum cash payment. The amount received will be less than the total death benefit. Generally, the amounts received in viatical sales are not income taxable.

Waiver of Premium: Waiver of premium is an optional provision of a life policy that waives the premium payments in the event the insured becomes disabled for a period of 6 months or more. The premiums are waived on the policy until the insured is no longer disabled, is deceased, or reaches a certain age. Some policies will specify that waiver of premium is for life, and other policies specify waiver of premium will end at a certain age, such as 65 years old. 

There are two basic categories of life insurance, term insurance and permanent cash value life insurance. Within these categories, there are several types of each. As the name implies, term life insurance is designed only to last a specified number of years or term. Permanent life insurance is designed to last a lifetime. Permanent life insurance offers both financial protection in case of death and the ability to build cash values that can be tapped in the form of loans or withdrawals when needed.  A brief description of the most common types are as follows:      

Term Life: Term life insurance is the simplest type of life insurance. It provides insurance protection for a specified period (or term) and pays a level death benefit if the insured dies during that period. Term life insurance does not have cash value and is typically issued for periods of 10, 15, 20, or 30 years. After the initial term period, the policy may allow renewal at a higher premium.

Credit Life: Credit life insurance is a type of term life insurance designed to cover a loan where the lender is typically the beneficiary. This type of term insurance uses decreasing term, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance. Credit life is not available for those debtors over 70 years of age, and existing credit life policies terminate when the debtor reaches 71 years of age. A borrower is not required to purchase credit life insurance. He or she may assign any other life policy or policies they own for the purpose of covering the loan.

Return of Premium Term: Some companies offer a term policy with a return of premium option where all premiums are refunded at the end of the term if the insured is still living. If the insured dies during the term, the death benefit is paid. There is no cash value and the premium is significantly higher than simple term insurance.

Whole Life: Whole life insurance is a type of permanent cash value life insurance that provides coverage for the whole of life or to age 100. Whole life is synonymous with ordinary life and straight life insurance. The cost of insurance is locked in at policy inception and premiums remain the same for the life of the insured. Like all permanent insurance, whole life has a cash value component that the policyowner can borrow from if needed. Cash values are very low or nonexistent in the early years and build up over time. The advantage of a whole life policy is the cost of insurance is guaranteed and never increases. The interest rate credited to cash values is also guaranteed. Be sure to review an illustration with your agent as this will show how the cash values build up.

Limited Pay Whole Life: This type of whole life is characterized by level premiums that are limited to a certain period (less than life). A 20-pay life policy is one in which premiums are payable for 20 years from the policy’s inception, after which no more premiums are owed. A life paid up at 65 policy is one in which the premiums are payable to the insured’s age 65, after which no more premiums are owed.

Single Premium Whole Life: As the name implies, this type of whole life involves a one-time premium payment at policy inception. From that period on, the policy is completely paid for.

Modified Premium Whole Life: This is a type of whole life policy with lower premiums in the first few years. After the initial period, the premiums are slightly higher than a traditional whole life policy. The purpose is to make permanent life insurance easier and more attractive when income may be lower in the early years of a career, with the expectation of higher earnings in the future.

Graded Benefit Whole Life: This is a type of whole life policy used for people with health issues who may not qualify for other coverage. During the first few years, the death benefit is equal to the premiums paid. After that period, the death benefit increases to its full amount. These policies may be referred to as Guaranteed Issue as very few applicants are excluded from obtaining coverage.

Indexed Whole Life: For this type of whole life policy, the death benefit or face amount automatically increases as the Consumer Price Index increases. Depending on the policy, additional premium may need to be paid as the death benefit increases.

Interest Sensitive Whole Life: Premiums for these policies are subject to change based on the cost of insurance and the company’s investment returns. A minimum amount of cash value is guaranteed. As with all whole life, the death benefit is guaranteed.

Endowment Whole Life: These policies offer insurance protection for a specified period with emphasis on rapid cash accumulation. The policy “endows” if the insured lives to the end of the period. This means that the policyowner will receive a payment equal to the policy’s death benefit, usually at the 10^th or 20^th year. Prior to federal tax law changes that occurred in the 1980’s, these policies were attractive for saving accumulation. Life insurance policies are now required to endow at age 95 or later to qualify as insurance.

Universal Life: Universal life insurance is a type of permanent insurance with cash values. This type of policy is also known as flexible premium or adjustable life insurance. As the name implies, the amount of premiums paid is flexible. Premiums may be increased, decreased or skipped altogether. Unlike whole life, the cost of insurance is not locked in at policy inception. The cost of insurance increases each year as the insured ages. As long as the cash value account generates enough interest to offset the increasing cost of insurance, the premium does not need to be increased for the policy to stay in force.  If the policy has not been properly funded over the years, and the interest being credited is less than expected, additional premiums will be needed to keep the policy in force. When this occurs, some insurers will allow the death benefit to be reduced. A reduced death benefit may allow for a more manageable increase in premium payments to keep the policy in force. Policyowners or insureds should request an illustration based on the premium amounts they are able to pay. Annual statement will show how long the policy is expected to last based on the current level of premiums being paid. Consumers should read annual statements carefully. Most universal life policies allow both withdrawals and loans from the cash value account.

Some companies will offer guaranteed universal life insurance where a no lapse guarantee is built in. With these policies, there is a set minimum premium which if paid, guarantees the policy will not lapse. However, when only the minimum premium is paid, the cash value will be smaller or possibly nonexistent.

Indexed Universal Life: This is a variation of universal life insurance that offers the potential for higher interest rates and larger cash values than traditional universal life policies. The policyowner or insured can select a variety of stock or bond indexes. The interest paid by the company mirrors the changes in the selected indexes, within certain limits. There are no direct investments in the market. However, if the premiums being paid and interest earned are not sufficient to support the cost of insurance, additional premiums will be required to keep the policy in force.

Variable Universal Life: This is a variation of universal life insurance where the cash values are allocated to separate investment accounts selected by the policyowner or insured. These investment accounts are not guaranteed by the insurer and are subject to market losses and gains just like mutual funds. When the investment accounts do well, cash values in the policy increase. If investment accounts do poorly, cash values can decrease. These policies are appropriate only for consumers who are comfortable with investment and market risk. An agent selling this type of policy must hold a securities license and provide a prospectus to a consumer whenever there is a discussion regarding variable universal life insurance. A prospectus is a formal document filed with and approved by the Securities and Exchange Commission (SEC). It provides detailed information about the investment accounts, fund objectives, risks, past performance, and fund expenses. 

Stranger Owned Life Insurance is a marketing arrangement whereby an entity, usually a consortium of investors, agrees to pay the premium on a large life insurance policy insuring the life of a consumer in whom the investor group has no insurable interest. The insured receives a cash payment from the consortium as a percentage of the death benefit, and the investor group collects the death benefit when the insured dies. In 2017, the Florida legislature outlawed these arrangements under section 626.99289, Florida Statutes.

Underwriting is the process an insurance company uses to determine whether it is willing to issue an insurance policy and the premium rate to be charged.

Some of the factors a company will consider when underwriting are age, gender health, medical history and habits, family health history, occupation, hobbies, and financial status, and overseas travel.

In some cases, a company may not require extensive medical history. This is normally associated with low policy limits. Higher coverage limits normally require more extensive research into the applicant’s current and past medical conditions. This may include obtaining a copy of the insured’s medical records and conducting a medical exam. 

Conversion of Term Insurance: Most term insurance policies contain a provision for conversion. This feature provides the insured with the option to convert the policy to a permanent type of insurance  without evidence of insurability. The premium for the permanent form of insurance will be higher than the current term insurance premium.

Interest on Death Claims: When a life insurance policy provides lump sum death benefits, the claim payment must include interest from the date the insurer receives written proof of death including all requested documentation. The interest rate must be equal to or greater than the Moody's Corporate Bond Yield Average-Monthly Average Corporate as of the day all requested documentation was received. If the method of calculating such index has substantially changed from the method in use on January 1, 1993, the rate must not be less than 8 percent.

Lost Policy Search: If you are unable to locate a life insurance policy on a deceased family member and feel certain they had life insurance, the following information may help. Look through desk drawers and filing cabinets for old bank statements, cancelled checks or other records that may indicate that insurance premiums were paid. Check with the insured’s bank to determine if a lock box exists that may contain old policies. Check with the insured’s home and auto insurance agent to ask if life insurance was ever purchased from the agent.

The National Association of Insurance Commissioners (NAIC) offers a free Life Insurance Policy Locator at https://content.naic.org/article/naic-life-insurance-policy-locator-helps-consumers-find-lost-life-insurance-benefits to help consumers locate a deceased loved one’s lost life insurance policy or annuity contract. The NAIC will reach out to participating companies and if a policy is found, they will contact you directly. You may also consider obtaining the services of a "Life Policy Locator" such as Medical Information Bureau (MIB). MIB has a database containing over 100 million records for individually underwritten life insurance. There is a fee associated with each search. For more information, you may contact MIB at (866) 692-6901 or visit their website at www.mib.com/lost_life_insurance.html.

Misstatement of Age on an Application: If an incorrect age was provided for a life insurance application, and death occurs, the company will pay an amount equal to the death benefit that the premiums paid would have purchased at the correct age.

Secondary Notice for persons 64 and older: A life insurance policy covering a person 64 years old or older, which has been in force for at least 1 year, may not be lapsed for nonpayment of premium, unless, after expiration of the grace period, and at least 21 days before the effective date of lapse, the insurer has mailed a notification of the impending lapse to the policyowner and to a specified secondary addressee, if one has been named. The company is required to notify the applicant of their right to name a secondary addressee at the time of application for coverage.

Veterans Unclaimed Life Insurance Benefits: Families can check their eligibility for funds through the Veterans Affairs website: https://www.benefits.va.gov/insurance/.

You must have the veteran's name, date of birth, date of death and, if possible, the policy number to complete a search. The website is the faster method to determine eligibility. However,  there is a toll-free number (1-800-669-8477) available.

Verify before you buy! Contact us to verify the license of the agent and the insurance company before you sign the application for a policy.

Life Insurance Guides! The guides are excellent tools to gain a better understanding of all the coverage and limitations of life insurance.

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