Glossary of Life Insurance Terms
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Choosing a career in life insurance is one of the best decisions you can make for your livelihood, quality of life, and overall wellbeing. In this blog post, we share some of the most common terms that you will hear while working in the life insurance industry.
- Annuity: A long-term series of payments made at fixed intervals, usually for the duration of a person’s life. The purpose of an annuity is to grow an individual’s retirement income.
- Application: A statement of information made by someone applying for life insurance, that helps the company assess the acceptability of risk, as well as their underwriting classification, and any premium rates.
- Beneficiary: The person named in a life insurance policy to receive the insurance benefits in the instance of the death of the insured.
- Bonus Rate Annuity: An annuity with an extra-high interest rate offered only for the policyholder’s first year, to attract new applicants.
- Cash Surrender Value – The amount of cash available to a policyholder if they voluntarily terminate their coverage. This represents the savings component of a life insurance policy.
- Death Benefit: The amount of money that the beneficiary receives when the policyholder dies.
- Dividend: The return that some policyholders receive as part of the distribution of a portion of an insurance company’s profits. Dividends are not taxable since they are interpreted as a refund of a portion of the insurance premium.
- Evidence of Insurability: A statement detailing the applicant’s physical health, assets, income, and other pertinent information to help the insurance company evaluate the applicant’s eligibility and risk, and determine any premium rates.
- Free Look Provision: The amount of time a new policyholder has to examine their policy and, if not satisfied, return it to the company for a full refund. This period is usually between 10 and 30 days.
- Group Life Insurance: Life insurance that is often offered by an employer or large organization. This is usually part of a larger benefit package.
- Insurable Interest: Proof that someone purchasing a life insurance policy on behalf of someone else has a substantial and lawful emotional and/or financial interest in their continued wellbeing. Demonstrating insurable interest is mandatory when purchasing life insurance for another person.
- Lapse Rate: The rate at which a life insurance policy will terminate because of failures to pay the premium. The option to reinstate coverage once it has lapsed exists, but the policyholder will have to requalify and pay any unpaid premiums. Their premium will also often go up after a lapse.
- Living Will: A will that details the author’s desires in the case of them requiring medical treatment while no longer being able to give consent.
- Mortality: The statistical frequency of death at a given age, used to calculate life insurance risk.
- Non-Participating Policy: A life insurance policy in which the insurance company does not distribute any part of its surplus to the policyholders.
- Premium: The payment required by a life insurance plan in order for the policyholder’s coverage to remain in effect. Premiums may be paid once a year or in a series of regular payments, depending on the terms of their contract.
- Rating: The basis for additional charges to the standard premium because the applicant has a greater-than-average risk of death.
- Reinstatement: Restoring a lapsed policy to its original status, upon payment, with interest, of the policyholder and reestablishment of their eligibility and risk.
- Risk Classification: The process by which a life insurance company decides on its premium rate according to the risk characteristics (i.e. age, occupation, sex, health status) of the applicant.
- Underwriter: The individual who determines the insurability of an applicant, and what their rate should be.
- Underwriting: The procedure a life insurance company uses to determine whether to insure an applicant, and at what rate. At Generational Wealth Group, all of our agents do their own underwriting through an easy, one-page process.
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Although there are many terms that a person must learn in order to become an effective life insurance agent, don’t be overwhelmed. At Generational Wealth Group, we believe that with the proper training and support anyone can become an effective life insurance agent and actualize their dream career. Do you live in the Fort Lauderdale area? Are you ready to break free from the 9 to 5 and help others in the process? Visit our contact page to begin the application process.