LIFE INSURANCE GLOSSARY

Interested in selling your policy through a life settlement?

Life Insurance Glossary
Terms and Definitions to Know

Are you in the process of buying a life insurance policy or making updates to an existing policy?

If so, you’re likely seeing a lot of terminology that’s unfamiliar. To help you understand what you’re looking at when comparing options, we’ve created this comprehensive life insurance glossary of terms that are relevant for the industry. Check out the life insurance definitions below to learn more about the terms you’re seeing.

Agent: A representative from an insurance company who evaluates your circumstances to help you choose a policy and negotiate the details of your contract.

Broker: While agents represent insurance companies, brokers represent consumers. A broker represents a consumer and will work with multiple insurance companies to find the best policy for their client. In a life settlement, a broker represents the seller and will negotiate with multiple providers to obtain the highest return for their client. Their goal is to maximize the sale price for the policyholder since it will increase their own commission.

Cash Value: The investment component of an insurance policy, in which money accumulates over time and gains interest with the intention of being used later in life.

Cash Surrender Value: The amount of money a policyholder receives by surrendering their policy to the insurance company, typically equivalent to the current cash value of the policy minus loans, interest, and surrender fees.

Death Benefit: The money beneficiaries will receive after the death of the policyholder, which is typically given as an untaxed lump sum payment. Death benefit may also be known as the policy’s “face amount”.

Face Amount: Face amount is another term for the death benefit, which is the amount of money the policyholder’s beneficiaries will receive after their death.

Insurance Policy: A written contract between the policyholder and insurance carrier that indicates coverage details including who is included, the policy length, and terms of the death benefit.

Insured: The person is covered by the life insurance policy. The death benefit will be distributed to beneficiaries upon their passing.

Insurer: The company who issues the life insurance policy and pays the death benefit.

Lapse: A lapse occurs when the policyholder does not pay premiums to keep the policy in force. There is usually a 31-day grace period, but after that the policy will have to re-apply for coverage and may need to pay the unpaid premiums.

Life Expectancy: The projected lifespan of the policyholder based on medical records and comparisons to similar individuals.

Life Settlement: A transaction that involves a policyholder selling their life insurance policy to a third-party buyer. The policyholder receives a lump-cash sum, while the buyer takes responsibility for paying premiums over the remainder of the insured person’s life. After the insured dies, the buyer collects the death benefit.

Policy Owner: The party who owns the life insurance policy. This is not always the insured, as an insured individual can sell their policy to a third party through a life settlement which would make someone else the policy owner.

Premium: The cost of maintaining the life insurance policy throughout the insured individual’s life. Premiums are dependent on several factors including policy type, policyholder age, health status, and family history. They can be paid monthly, quarterly, semi-annually, or annually.

Provider: In a life settlement, a provider is a third-party investor or company who makes an offer to purchase a life insurance policy. Their goal is to buy your policy for the lowest amount to maximize their profit.

Surrender: The process of giving a life insurance policy back to the carrier, usually for a small return in the form of a lump-cash sum.

Term Life Insurance: An insurance policy that provides coverage for a specific period of time, typically between 1-30 years. At the end of the term, the policyholder can usually be renewed, but may cost more. Term policies do not accumulate cash value.

Universal Life Insurance: A hybrid type of life insurance that combines the protection of term policies with the cash value elements of permanent insurance.

Viatical Settlement: A transaction in which someone with a terminal or chronic illness sells their life insurance to a third party for a lump-sum cash payment. The buyer assumes responsibility for premiums and collects the death benefit when the policyholder passes away.

Whole Life Insurance: A type of life insurance that covers someone through the remainder of their life. These policies also accumulate cash value, which can be used to help with retirement or leave behind a larger death benefit.

Life Insurance Glossary Infographic

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