Life Insurance Terms

Shawn Plummer

CEO, The Annuity Expert

If you’re thinking about taking out a life insurance policy, it’s essential to understand all the terms involved. Life insurance can seem complicated if you’re unfamiliar with the terminology, but understanding how each term works will help ensure that your policy meets your needs. In this guide, we’ll go over some of the most commonly used life insurance terms so that you can navigate through the life insurance underwriting process and get a policy that best fits your lifestyle and future goals.

What Does The Term “Death Benefit” Mean?

The death benefit is the amount a life insurance policy pays out upon the insured person’s death. This money can help beneficiaries cover funeral expenses, replace lost income, settle debts, or pay end-of-life medical bills. You pay premiums, investing either monthly or annually, for a death benefit that your beneficiary will receive upon your passing. Many consider death benefits an integral part of their retirement income strategies because they provide a financial safety net in the event of their passing. The death benefit amount is typically determined when the policy is taken out and can be changed throughout the policy’s life as long as premiums are paid.

Death benefits can also serve as an estate planning tool, allowing individuals to transfer wealth to their heirs or beneficiaries without going through probate court. In addition, life insurance proceeds accelerated death benefits are generally considered tax-free, meaning beneficiaries often receive the full death benefit without paying taxes. This can be particularly beneficial for those with high-value estates or whose heirs may not have the means to pay their inheritance taxes.

What Does The Term &Quot;Death Benefit&Quot; Mean?

What Does The Term “Premium” Mean?

The term “premium” is commonly used in life insurance. It refers to the amount of money an individual or company pays periodically (usually monthly) to be covered by a life insurance policy. The premium covers the cost of providing the protection associated with life insurance and other expenses, such as administrative costs and the costs of developing and maintaining the policy.

The premium paid for life insurance applicants can vary depending on factors such as the type of life insurance policy, the insured person’s age or health, and other associated characteristics. Premiums are often tax-deductible for companies that provide life insurance policies to their employees.

What Does The Term “Cash Value” Mean?

Cash value is a feature of life insurance policies that allows policyholders to save money inside their contracts. A portion of the premiums paid is set aside in an account and grows over time, depending on the type of policy purchased. This cash value can be borrowed against or withdrawn without paying taxes as long as the withdrawal amount isn’t more than the total premiums paid.

Over time, this cash value can supplement retirement income and provide additional financial security in later years. In addition, some policies also offer a death benefit that is paid out upon passing. This death benefit can help with funeral costs, medical expenses, and other needs for the surviving family members.

What Does The Term “Accumulation Value” Mean?

Accumulation value is a term used to describe the amount of money in an insurance policy accumulated after paying premiums. This value includes any dividends, interest, and other credits earned on the policy. Understanding how accumulation value works are crucial because it can affect your payout upon retirement or death.

For example, suppose you are using a whole life insurance policy as part of your income strategies for retirement. In that case, the accumulation value in the policy will influence how much money you can receive from it. Therefore, it is essential to understand precisely how this works so that you can make informed decisions about the best way to use your policy.

The accumulation value of an insurance policy is calculated by subtracting all the outgoings from the policy’s value. This includes any fees charged for administration, premiums paid, and surrender values. The remainder is your accumulation value.

What Does The Term &Quot;Accumulation Value&Quot; Mean?

What Does The Term “Guaranteed Return on Investment” Mean?

Guaranteed return on investment (ROI) is a term used to describe the fixed, predetermined rate of return that policyholders can expect to receive on their investments when they purchase certain types of life insurance contracts. These policies usually guarantee an interest rate that will remain constant for a specific period and are insured by the issuing company. This type of policy is typically used by individuals who want to ensure that their investments will provide a steady, predictable rate of return over time.

When selecting a life insurance contract for retirement income strategies, it is essential to understand that not all policies offer the same guarantee level. Some have higher returns than others but may have more restrictions or more significant risks. Therefore, before committing to a policy, it is crucial to research and compare different policies from multiple companies to make the best decision for your situation.

What Does The Term “Surrender Value” Mean?

Surrender Value is a term used to refer to the cash value of a life insurance policy. This is usually determined by subtracting applicable charges from the total accumulated premiums paid into the policy. The surrender value can be withdrawn or borrowed against. However, it will typically result in lower death benefit amounts for the policyholder and beneficiaries.

The surrender value is a type of income strategy to use during retirement; however, it should always be considered carefully, as the cost of early surrender can be significant. In addition, it is essential to understand that this individual will no longer receive death benefit payments if they withdraw or borrow against their policy’s cash surrender value. As a result, these funds may not last throughout their retirement years.

What Does The Term “Interest Rates” Mean?

Interest rates in life insurance refer to the return on premium payments, dividends, or other income that a policyholder can receive. These rates vary between various life insurance companies and policies, depending on many factors, like how long the policy has been in place and the risk of investing in specific stocks. The interest rate also affects the cost of premiums and what kind of payout the policyholder can expect. By understanding how interest rates work, policyholders can make informed decisions when selecting life insurance coverage and determine what type of returns they’ll receive.

The interest rate can also be used to compare policies from different providers, as it indicates their financial strength. Generally speaking, higher interest rates usually signify a solid, financially secure insurer. Conversely, low-interest rates can indicate the opposite – an insurer with shaky financials and unreliable performance over time.

What Does The Term &Quot;Interest Rates&Quot; Mean?

What Does The Term “Rider” Mean?

A rider is an additional benefit that can be added to a life insurance policy. Riders provide the insured with additional protection and coverage, often at an additional cost. Some standard riders available include accidental death benefits, waiver of premium benefits, and disability income benefits.

Consumers can customize their life insurance policies with riders to fit their needs. It is essential to read the policy details and understand the benefits associated with each rider before adding it to a life insurance policy. Each rider will have its rules and regulations, which can vary from company to life insurance company. It is also essential to be aware of any additional fees or costs associated with adding a particular rider to a life insurance policy.

Riders can be added to term and permanent life insurance policies. Term life riders are generally less expensive than those for permanent life insurance since they only provide coverage for a set period. However, riders on permanent life policies can often be renewed without having to reapply for coverage.

What Are The Two Main Types of Life Insurance?

When planning for retirement income, life insurance is an important option. There are two main types of life insurance: term and permanent. Term life is a popular choice due to its affordability and flexibility. It covers you for a specific period (the “term”), such as 10 or 20 years, and pays a death benefit if you die during the term.

Permanent life insurance is a more expensive but long-term alternative that offers coverage for your entire life. It also accumulates cash value over time, allowing you to use it for retirement income or other financial needs.

Choosing the right type of life insurance depends on individual needs and financial goals. You must consult a financial professional or insurance agent to determine your best option. No matter which life insurance policy you choose, it can provide valuable death benefits or be used as an income source in retirement. It’s an integral part of any retirement savings plan that should not be overlooked.

What Are The Two Main Types Of Life Insurance?

What Are Four Types of Whole Life Insurance?

Whole life insurance is a permanent life insurance policy offering protection and the ability to build up cash value. This cash value can be used in retirement planning by borrowing against it, accessing the money through withdrawals or policy loans, or cashing out the policy altogether. Below are four types of whole life insurance:

  • Traditional Whole Life Insurance: Traditional whole life provides level premiums, death benefits that are guaranteed never to decrease, and cash value accumulating over time.
  • Variable Whole Life Insurance: Variable whole life offers some of the same features as traditional policies but with one key difference—the policyholder has more control over where the cash value is invested. The policyholder can choose investments from a range of equity and fixed-income options, and the cash value will vary according to those investments.
  • Universal Life Insurance: Universal life insurance offers adjustable premiums and death benefits so that policyholders can adjust their payments or death benefit amount depending on their changing needs. Universal life policies also offer flexible cash value accumulation, allowing policyholders to use the money as needed. There are also variable universal life insurance policies that offer the assurance of a death benefit and the possibility for increased cash value growth.
  • Indexed Universal Life Insurance: Indexed universal life (IUL) insurance combines some of the features of whole traditional life and universal life policies but with one added benefit—the cash value is tied to a market index such as the S&P 500. The policyholder’s cash value will go up when the index increases but won’t decrease when the index drops. This is a great way to increase cash value in retirement planning without incurring much risk.

Whole life can be a great financial tool for retirement planning because of its flexibility and protection. Each type of whole-life policy has unique benefits and is worth considering for those looking to save for retirement.

What is Term Life Insurance?

Term life insurance is a type of life insurance policy that provides financial protection for a predetermined period. It is less expensive than other permanent life policies but offers no cash value. When the term expires, so does the death benefit coverage.

Therefore, choosing a term length that adequately satisfies your needs is essential. For retirement planning, term life can help replace lost income in the event of an unexpected death. It can also help with estate planning and help cover final expenses, such as funeral costs. In addition, term life can be used as security for a loan or other financial obligation that would otherwise become a burden on those left behind.

When considering term life for retirement planning, you must be realistic about the coverage you need. The amount of coverage you select will depend on your situation and goals. Consider current assets, future income needs, existing debt obligations, and whether or not any family members may rely on the deceased’s income.

What Is Term Life Insurance?

What Are The Four Types of Term Life Insurance?

Term life insurance is one of the more popular types of life insurance and can be an excellent option for someone looking to protect their financial security during retirement. But there are four types of term life, each with advantages and disadvantages.

The first type is level-term life insurance, which offers beneficiaries a fixed amount upon the insured’s death. The premium remains unchanged throughout the policy term and is typically lower than other life policies. However, this type of policy does not build cash value or accumulate savings over time.

The second type is decreasing-term life insurance which offers a benefit amount that decreases over time. This type of policy is usually used as a mortgage protection plan since the benefit decreases roughly in line with the amount of debt left on the home loan. But, again, no cash value or savings are accumulated.

The third type is return-of-premium life insurance which allows the policyholder to receive the total premium back at the end of the term, provided they are still alive. This type of policy is more expensive but offers some potential savings in the long run if you outlive the term.

Finally, there is increasing-term insurance which provides increasing amounts of coverage each year that it is active. This type of policy can be helpful for inflation protection or retirement income planning. While premiums are higher than a level-term policy, the rising death benefit can be beneficial over the long run.

What Happens at The End of a Term Life Insurance Policy?

Typically, nothing happens at the end of a term policy. The policy expires, and no death benefit is paid out. Once the term is over, no more premiums will typically be paid, and the policy lapses.

However, some term policies allow you to convert your term policy into a permanent life insurance policy or cash the policy in for its surrender value. A permanent life insurance policy is an option if you want coverage that will last your entire lifetime and provide additional features like cash value accumulation. Depending on the type of permanent policy you choose, there may be different tax implications than term policies.

What Happens At The End Of A Term Life Insurance Policy?

What is Group Life Insurance?

Group life insurance is a policy that provides death benefits to the beneficiaries of an insured individual. Employers can purchase this type of insurance as part of an employee benefits package. It can provide financial security for surviving family members in case of the insured’s death. In addition, group life insurance may offer other features such as disabilities, critical illness, and accidental death benefits.

Group life insurance can be a great resource when planning for retirement since it provides financial protection that may not be available through other income strategies. With group life insurance, employers can provide their employees with coverage at an affordable rate that could make a big difference in providing security during retirement years. Therefore, it’s essential to consider the features and benefits of this type of policy when deciding which retirement income strategy is the most suitable for you.

At What Age Should I Consider Purchasing Life Insurance?

Regarding retirement income strategies, life insurance might be one of the last things on your mind. However, it is a crucial factor to consider when planning for retirement. Life insurance can provide a death benefit to your beneficiaries upon your passing. It can also help cover long-term living costs if you become disabled or unable to work.

It is recommended that you start thinking about purchasing life insurance in your early 30s, as purchasing at a younger age can be more affordable. However, even if you don’t foresee the need for coverage right away, this is an essential piece of financial security to have in place if needed.

When shopping for life policies, consider the different types of coverage available and ensure you understand your policy’s terms and conditions. Additionally, ask yourself what type of life insurance is right for you—term, whole, or universal? Knowing the answers to these questions will help you determine which policy best fits your retirement needs.

What is The Most Popular Type of Life Insurance?

The most popular type of life insurance is term life. This is because it offers the most security at the lowest cost. Term provides a death benefit for a specific period, such as 10, 20, or 30 years. As long as you pay your premiums on time, the policy will remain in effect, and you’ll receive the death benefit if you die within the specified period.

For retirees, term life is an affordable way to leave behind a sizeable tax-free death benefit for a spouse or other beneficiaries. Because premiums are more affordable than permanent policies, it’s easier to fit into your retirement budget. You can secure coverage until your retirement savings are sufficient to cover any final expenses and other costs you’ll leave behind.

How Much Does Life Insurance Cost?

When it comes to income strategies for retirement, life insurance may be an option to consider. Life insurance costs depend on several factors, such as the death benefit amount and the type of policy you choose. Generally speaking, term insurance is more affordable than entire life. Getting quotes from multiple providers is essential to determine how much your policy will cost.

Life insurance costs also depend on age, health, and lifestyle habits. For example, policies for individuals considered to be high-risk can be more expensive due to their increased risk of death. In addition, the older you are when you purchase a policy, the higher the premiums.

How Much Life Insurance Do I Need?

When planning for retirement, it is essential to factor in life insurance. If you have dependents, they may be financially vulnerable if something happens to you. Ultimately, the amount of life insurance you need depends on your financial goals and obligations – but as a general rule of thumb, many experts suggest having between 5-10 times your current income in life insurance. Calculating how much coverage you need is a great way to ensure the security of your family’s future should something happen to you.

Regarding retirement, a few key things to remember when determining how much life insurance you need. First, consider your expenses – especially long-term financial commitments like loans or mortgages. Additionally, it’s essential to consider your income replacement needs – would your family survive without your income? Finally, consider any other financial goals you have for retirement, such as paying off student loan debt or establishing a college fund for dependents.

How do I Purchase Life Insurance?

Life insurance can be purchased through an insurance broker, financial advisor, or insurance company. Shopping around and comparing different policies is vital to find the right fit for your budget and needs. Insurance brokers are a great resource because they work with multiple companies and can help you compare costs, coverage, and other features of variable life policies.

A financial advisor can help you assess your overall retirement plan and make sure that life insurance is an appropriate strategy for you. Finally, you can purchase life insurance directly from an insurance company, either through their website or through a representative over the phone or in person. Whichever route you choose, it’s important to ask plenty of questions and ensure you understand the policy before signing any agreements.

Next Steps

All in all, life insurance terminology is something that everyone should be aware of. While it may seem complicated at first glance, familiarizing yourself with the language and how it applies to life insurance can help you make a well-informed decision when purchasing your policy. Understanding how life insurance works in general and its different components will ensure that you’re continually maximizing your coverage value so that those who depend upon you are protected if anything should happen to you. It’s essential to shop around for quotes, compare policies and ask questions of any professional life insurance experts you meet with to search for the best coverage option for your individual needs. Doing so allows you to save time and money while still being adequately covered. Life insurance is an essential part of any financial portfolio, and understanding basic life insurance terms will significantly help you along your path to financial security. Check out our life insurance calculator and contact us for a free quote!

Life Insurance Terms

Need Help Getting Life Insurance Coverage?

Contact us if you need help purchasing a life insurance policy. The service is free of charge.

Life Insurance Inquiry

Frequently Asked Questions

What are the terms used in life insurance?

Premiums, beneficiaries, policyholder, death benefit, underwriting, policy, riders.

What are the four types of term life insurance?

Level term, decreasing term, increasing term, and renewable term.

What is life insurance’s meaning and definition?

Life insurance is a contract between an insurer and a policyholder in which the insurer guarantees to pay a specified sum of money to named beneficiaries upon the insured person’s death.

What are the five insurance policies?

Home insurance, auto insurance, life insurance, health insurance, and disability insurance.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

Scroll to Top