Unless you work in the life insurance industry, understanding all the jargon when you are searching for and comparing life insurance quotes can be overwhelming. In this post, we’ll break down some of the common terms you’ll come across when shopping online for life insurance.
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Terminology Break Down So You Feel Confident When Getting Life Insurance Quotes Online
Term Life Insurance
Term life insurance provides life insurance protection for a limited period of time.
This limited period of time is called the term length. The life insurance company will pay claims at any point during this term. At the end of this term length, the insurance company’s obligation is complete unless the policyowner can renew or convert the policy.
Level Term Life Insurance
Most term life insurance policies have level premiums. This means that the premium cost you lock in when you first purchase the policy will remain the same for the entire term.
Decreasing Term Life Insurance
Decreasing term life insurance is a type of non-level life insurance. With decreasing term life insurance the amount of coverage you have decreases each year, but the policy premiums typically remain the same. This type of policy is often used to cover loans with balances that decrease over time, like a mortgage.
However, most families would benefit more from a level term policy than decreasing. Decreasing term life insurance often isn’t sufficient for an individual’s needs. The premiums of decreasing term life insurance also tend to be more costly than level term life insurance.
Convertible Term Life Insurance
Most term life insurance policies automatically include a conversion option. This gives the policyowner the right to replace their term policy with a permanent policy without going through underwriting again—as long as they do so within the policy’s specified timeframe.
Convertible term life insurance is beneficial for policyowners who may want permanent life insurance in the future but cannot currently afford the high premiums that come with whole life insurance and other types of cash value permanent insurance.
Renewable Term Life Insurance
Many term life insurance policies offer the option to renew your coverage at the end of the term length. You can renew it year after year without having to retake a medical exam or prove your insurability.
However, renewing your policy increases your premiums drastically. This route is normally only used if your health has failed after the policy is inforce and you have no other options. If you’re still relatively healthy, we recommend you instead apply for a new term policy.
Return of Premium Term Life Insurance
Return of premium term life insurance is a type of life insurance that returns all of your premiums at the end of the term if you are still alive. Return of premium term life insurance can cost 25-50% more than traditional term life insurance.
Direct Term Life Insurance
Direct term life insurance is life insurance you buy directly from the insurance company.
Whole Life Insurance
Whole life insurance is the most common type of permanent life insurance. With whole life insurance, the insurance company will pay the death benefit amount at the time of the insured’s death regardless of when death occurs. Whole life insurance is life insurance coverage that lasts the insured’s entire life.
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Whole life insurance also accumulates a cash value. While this cash value does not get added to the death benefit, the policyowner can access the funds via policy loans. Like any other loan, policy loans accrue interest. These loans can be paid back at any time. If the insured dies and the loan is still outstanding, the insurance company subtracts the loan amount plus interest from the death benefit total that is paid out to the beneficiaries.
Whole life insurance can also be participating and non-participating. A participating life insurance policy pays dividends to the policyowner. Policyowners who opt for a participating whole life insurance policy share in the profits the insurance company generates from investments; however, these dividends are not guaranteed.
Because whole life insurance lasts your entire life and has additional features such as cash value accumulation, the premiums for whole life insurance are much more expensive than term life insurance.
» Learn more: Term Life Insurance vs. Whole Life Insurance
Guaranteed Whole Life Insurance
Guaranteed whole life insurance is a type of permanent life insurance that you can’t be turned down for. There are no medical questionnaires or exams. These policies feature fixed premiums (they will never increase) and a cash value component.
Guaranteed whole life insurance policies also have a graded death benefit. This usually means that if you die within the first two years of owning the policy, the insurance company will only pay your beneficiaries the premiums you’ve paid thus far (plus a little interest) not the full death benefit. The exception here is if your death was caused by an accident. After two years have passed, your beneficiaries will receive the full death benefit no matter how you die.
This type of life insurance is also commonly referred to as final expense life insurance, burial insurance, funeral insurance, guaranteed acceptance life insurance, and guaranteed issue life insurance.
Convertible term life insurance is beneficial for policyowners who may want permanent life insurance but cannot currently afford the high premiums that come with whole life insurance and other types of cash value permanent insurance.
A life insurance underwriter appraises the risk of insuring an individual and determines a risk class. The underwriter determines this by reviewing guidelines that have been defined by actuarial estimates based on principals of probability.
Risk classes are categories that life insurance companies use to group people with similar health and lifestyle risks. Companies create these classes by using actuarial data to determine which factors affect a person’s life span, and weighing how important each risk factor is.
Basically, the lower your risk of death, the better your risk class will be, and a better risk class means you’ll pay a lower premium for your policy.
» Learn more: What Will My Risk Class Be?
This is the person who applies for life insurance and has control over the policy. The policyowner is typically also the person who pays the premiums.
This is the person whose life is insured. The insured and policyowner are often the same person, but not always.
This is the person or entity who receives the death benefit upon the death of the insured.
There are both primary and contingent beneficiaries. The contingent beneficiaries are back-ups to the primary. If the primary beneficiaries cannot receive the benefit then the contingent beneficiaries will receive it.
Life Insurance Company
The life insurance company provides the financial coverage to policyowners. Upon the death of the insured individual, the life insurance company pays the death benefit to the beneficiary(ies).
The life insurance company is also referred to as a carrier and insurer.
Life Insurance Broker
A life insurance broker works on behalf of customers looking to buy life insurance. A broker is not tied to any one life insurance company and therefore is able to offer more coverage options to customers.
Life Insurance Agent
A life insurance agent is the buffer between customers and life insurance companies. There are two main types of life insurance agents: independent agents and captive agents.
Independent life insurance agents, like brokers, represent many different insurance companies.
Captive life insurance agents represent one specific life insurance company. Captive agents tend to have thorough knowledge of their products but they may not have access to multiple company options.
If you are unable to work because of sickness or accident, disability insurance helps replace the missing income.
There are many variations of individual disability insurance. The benefit amount, the waiting period, and the benefit period are just a few features of disability insurance that can be customized. Determining the cost of disability insurance is similar to that of life insurance, but the evaluation process is more complex since a disability is often a recurring condition throughout the insured’s lifetime.
You’re Now Ready to Compare Life Insurance Quotes
There are a lot of terms we just reviewed, but thankfully you need just a basic understanding. Your Quotacy agent will guide you through the life insurance buying process and can answer any questions along the way.
You can anonymously compare life insurance quotes online at Quotacy in seconds. Pick a policy that fits within your budget and then you can apply right online.
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About the writer
Writer, Editor, and Co-Host of Quotacy’s Q&A Friday YouTube Series
Natasha writes and edits content and is co-host of Quotacy’s YouTube series. She is also working toward her Chartered Life Underwriter (CLU) designation. When not working or studying, you’ll find her throwing a tennis ball for her pitbull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on.