Life Insurance 101

Whether you’re learning about life insurance for the first time or just need a refresher, here are definitions to some key terms.

The basics

Life insurance
A legal contract that pays a
benefit upon death of the
insured.

Insured
The person whose life is
covered under the policy.

Policy owner
Person or entity that owns an
insurance policy and has the right
to exercise all privileges under the
contract of insurance. A policy owner
may or may not be the insured, or the
beneficiary of the policy.

Beneficiary
The person or financial entity
(for instance, a trust) named
in a life insurance policy
as the recipient of policy
proceeds in the event of the
insured’s death.

How it works
	Underwriting Guidelines used to determine the insured’s eligibility for coverage, how much coverage is available and what it will cost. Underwriters review financials, medical history and occupational duties.	Inforce It’s the same as saying your life insurance is in effect. It means the application process is over and your policy would now pay the death benefit if something were to happen to you.

Policy design
	Rider Amendments that expand or restrict a policy’s benefits. Selecting or foregoing riders will affect the cost of the policy.	Accelerated death benefit rider Enables the insured to receive a specific percentage of the death benefit prior to death, should they be diagnosed with a chronic or terminal illness. The death benefit is reduced when this rider is exercised.	Waiver of premium Rider or provision included in most life insurance policies exempting the insured from paying premiums after insured has been disabled for a specified period of time, usually six months.	Conversion privilege A provision guaranteeing the insured’s right to convert the policy to a permanent policy at the same insurability rating within a specified time limit.

Cost/benefits
	Premium The periodic payment required to keep an insurance policy in force.	Death benefit The amount of money payable to the beneficiary as a result of the death of the insured.	Cash value Also known as cash surrender value, this is the amount of money available if the policy is canceled before it becomes payable upon death or maturity.

Many people have misconceptions about life insurance that prevent them from getting enough (or any)
coverage. Here are some of the most common life insurance myths — and the facts.

Myth 1 You only need life insurance if you have kids.	Life insurance isn’t only for people with children. Even those without kids may leave behind joint debts, funeral expenses and other bills that need to be paid. Life insurance can also provide a spouse with income replacement during a difficult time and can complement an investment portfolio.

Myth 2 Life insurance is just for “older” people.	Younger individuals are often less likely to die. But they’re much more likely to leave behind a younger family that may struggle financially in the event of a loss. The younger you are, the more likely you are to be healthy, and you may qualify for better rates. If you purchase a policy now, you guarantee the existing coverage if something happens to you.¹

Myth 3 I have enough life insurance through work.	You may not have sufficient life insurance through your employer — especially if you have dependents or major debts. What if something unexpected happens and you lose your job? This could leave you without coverage. Taking a little time to plan now can make all the difference for when life throws a curveball.

Myth 4 Life insurance is expensive.	Life insurance costs less than you might think. An industry study found most people overestimate the cost of life insurance by more than three times the actual cost.² Life insurance comes in many shapes and sizes to match your needs and budget.

Myth 5 Buying term insurance is always best.	It’s true that a term life policy can be less expensive in the short term. However, the cost of coverage with other types of policies that provide a cash value may end up being less over time. Many policies allow you to convert a term policy to a permanent policy at the same insurability rating within a specified time limit. So the earlier you buy, the better off you may be.

1 All guarantees and benefits of insurance policies are backed by the claims-paying ability of the issuing insurance company;
they are not backed by the broker/dealer.
2 2018 Insurance Barometer Study, LIMRA and Life Happens


There are two primary types:	Term Coverage that lasts until a certain age or for a certain time period. Your policy might provide coverage for anywhere from one to 30 years. After that time, you would have the choice to renew the policy or let the coverage end. Term insurance tends to be less expensive.	Permanent Coverage that you can’t outlive as long as you pay your premiums. Allows you to build cash value that you can use while you’re alive in whatever way you see fit.
There are two primary types:

There are a wide variety of permanent insurance options that can be paired with term coverage or used alone to meet your unique needs.

Whole life: The oldest form of permanent life insurance. It provides a fixed, level premium and a fixed, level death benefit for life. The policy’s guaranteed cash value typically grows at a rate that will enable it to equal the death benefit at age 100.

Universal life: Delivers flexible premiums and death benefits. Usually, it includes a cash value account that accumulates at a floating rate of interest with a minimum rate guarantee. While some
universal life policies focus on providing guaranteed death benefits, some other policies also focus on accumulating cash values.

Indexed universal life: Offers many of the same benefits as traditional universal life insurance, with one primary difference — the way interest is credited to the cash value of the policy. With traditional
universal life policies, the insurance company declares a fixed rate of interest. But with an indexed policy, interest is credited to the cash value based on the movement (up and down) of a specific stock
market index or indexes over a specific period of time. Over the long term, an indexed policy could mean more cash value.

Variable universal life: Combines the flexibility of universal life with the performance of investment accounts. Since variable policies are performance-based, they may outperform or underperform a
traditional whole life or universal life policy. Both the premium and the death benefit are flexible. The net premium is directed to investment sub-accounts, with potential growth in cash value and death
benefits tied to the accounts’ performance.

Supplemental life insurance coverage falls into two categories: employer-offered and individual
insurance. Some employers may allow you to purchase coverage above and beyond what they provide — often in $10,000 increments up to a stated maximum. But there are a variety of reasons why an individual policy might be right for you.

Here are some important things to consider as you start to explore what type of supplemental life
insurance meets your needs:
• Does the cost of any current insurance change as you get older?
• Can you take the coverage you have with your employer with you if you leave or lose your job?
• What type of life insurance does your employer offer?
• How long does your employer’s coverage last?
• Do you have a medical condition that may impact your individual insurance rate?

Employer-offered vs. individual life insurance: pros and cons

	Pros	Cons
Employer-offered Includes features of both employer-paid and voluntary-purchased coverage	• No medical questions or requirements for certain amounts of coverage for employees, spouses and children (can’t be declined in certain situations) • Generally, costs less initially for people near or under age 35, tobacco users or people with health issues • May have Accidental Death & Dismemberment (AD&D) Rider that could double benefit amount if insured dies accidentally • Can get small amounts of coverage • Often payroll deductible while working for employer	• May lose coverage upon termination of employment (unless there’s a portability option) • Generally, cost will increase as you get older • Cost can increase upon termination of employment • Maximum coverage amount may be less than you need • Limits amount of coverage you can get for spouse or children • Coverage usually ends at a certain age (typically 70 to 75)

Individual Includes features of both term and permanent coverage	• Generally, lower cost over life of policy, especially if in good health • Leaving your employer doesn’t affect your coverage • Can lock in your premium for a period of 10 years up to a lifetime • Can convert individual term insurance to permanent coverage • Higher coverage amounts are available when needed • Has more rider options	• May need to go through medical underwriting • Could be declined coverage • AD&D Rider often isn’t available • Minimum amount of coverage may be more than you need • Generally, higher initial cost for younger people • No payroll deduction available

Watch a short 3 minute video to learn more about life insurance and what to expect when applying for a new policy.

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