What is life insurance?

test_admin September 10, 2020 Updated:September 10, 2020

Life insurance provides a tax-free lump sum of money to replace lost income after your death, offering affordable financial protection — and invaluable peace of mind — to people whose friends or family rely on them.

The money from a life insurance policy can be used to pay expenses like a mortgage, utility and grocery bills, children’s college costs, final funeral arrangements, and more.

Tagged: Life Insurance

Terms & Definitions

Accelerated Death Benefits –A life insurance policy rider that allows the insured to access their death benefits when facing a terminal illness. This access is provided to assist with the expense of palliative (end of life) care.

Convertible Term Life Insurance – Term Life Insurance is form of life insurance which provides a death benefit protection for a specified period of time (hence the name “term”). The length of the term can vary such as 5, 10, 20 or even 30 years. Term life insurance is very simple, no complicated savings or retirement plans, it’s simply life insurance without the frills. However “convertible term” adds a unique twist. With convertible term, you can start off with regular term insurance for a period of time but later convert your policy into another type of life insurance coverage (permanent life, endowment, whole life), which never expires. This is only possible if your original policy has not expired. Additionally, you won’t have to qualify for or be subject to health exams in order to make such a switch. You’ll be guaranteed an option for continued coverage. Lastly, if you qualified for a healthy discount when you purchased your original convertible term policy, you’ll receive their current healthy discounted (preferred) pricing in your new policy.

Decreasing Term Life Insurance (also called Mortgage Payment Protection Insurance or MPPI) – a special type of term life insurance where the death benefit amount reduces over time corresponding with the remaining balance on your mortgage –premiums usually remain fixed.

Diabetes Life Insurance – specialized life insurance with some insurance companies which is based on the type of diabetes, onset age, family history, methods of treatment, and other factors.

Family Income Benefit Life Insurance – Most life insurance policies pay out in a simple lump sum upon the death of the insured. If you opt to have an FIB insurance policy, your family will receive a monthly payment, instead of a single large sum.

Group Life Insurance – Insurance purchased through a group or organization. An employer may offer this type of insurance for their employees.

Guaranteed Premium – the premium remains the same throughout the policy term.

HIV Life Insurance – life insurance for people diagnosed with human immunodeficiency virus (HIV). Some insurance companies require an individual to be on Highly Active Antiretroviral Therapy (HAART) in order to obtain this coverage.

Increasing Term Insurance – A type of term life insurance coverage coverage where the death benefit and premium cost increases over time.

Indexation – when a policy is tied to inflation, with benefits and premiums increasing annually.

Insurable Interest – when one party has a dependent and/or close financial relationship to another. Insurable interest relationships exist between spouses, a company and key workers, in a close company between director shareholders, and someone who financially depends upon another person.

Key Person Life Insurance – life coverage for a person who makes a significant contribution to the financial status of a company. Directors, partners, executives, and shareholders are commonly considered key people. The coverage features a lump sum payout benefit designed to financially protect the company upon the death of the individual.

Lapse – when a policy ends due to non-payment of premiums

Level Term Life Insurance – a policy that provides a fixed death benefit, in the form of a single lump sum payment if the insured dies prior to the expiration date of the policy.

Life of Another – a life insurance application made by someone other than the person being insured. The applicant will need to provide the insurance company with proof that they have an insurable interest.

Mortgage Protection Life Insurance – Also the same as Decreasing Term Life Insurance.

Renewable Term Life Insurance – a short-term life insurance policy that may be renewed every five to ten years without a medical underwriting requirement.

Reviewable Premium – the premium is subject to review by the insurance company. A review is usually conducted after the first ten years and in five-year increments after the initial review. As you age, you can expect the cost of your future premiums to increase with time.

Settlor – the person who establishes assets under a trust. This individual agrees to the trust deed provisions, appoints trustees, and designates trust beneficiaries.

Terminal Illness Benefit – the option to file a claim on a life insurance policy if the insured is diagnosed with fewer than 12 months to live. This benefit is usually included in a life insurance policy at no extra charge.

Total and Permanent Disability (TPD) – a provision in a critical illness policy that covers any medical conditions and illnesses not listed elsewhere in the policy, when there is no hope of recovery over the long-term.

Trust – a legal structure that allows the benefits of a life insurance policy to be paid to beneficiaries.

Trustees – individuals or a corporate body appointed by a trust settlor to administer a trust according to its terms and conditions.

Waiver of Premium – this policy feature is offered at an additional cost and covers premium costs when the insured becomes ill.

Whole of Life – life insurance coverage that lasts for the lifetime of the insured and pays a lump sum benefit upon the death of the insured. It may feature an investment component or may be offered as a non-investment, guaranteed premium policy.

Will – a legal declaration by an individual that names one or more people to manage his or her estate and transfer owned property upon his or her death.

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