Smart planning starts with understanding.

You may attach an accelerated death benefit to your life insurance policy. This feature enables you to receive cash advances against the death benefit if you are diagnosed with a terminal illness.

With accidental death benefit insurance, the death benefit is only paid if your death is the result of an accident, rather than illness or other causes. An automobile accident or a fall are examples of an accidental death.

With an all cause death benefit, your policy will pay out for any cause of death, except those specifically excluded in the policy.

The total amount of premium you pay each year is called the annual or annualized premium. Insurance companies offer several premium payment options, including monthly, quarterly, semi-annually or annually. Many insurance companies will give you a discount for paying your policy annually.

A term life insurance policy that renews every year, instead of a multi-year term, is called an annually renewable term. While you’re still guaranteed future protection, ART premiums are based on a one-year contract and are likely to change as the policyholder ages.

When you purchase life insurance, you select your beneficiary. This is the person or entity that life insurance proceeds (the death benefit) are paid to when you die. While beneficiaries are often family members, they can also be a friend, business partner, trust, or estate.

see Final Expense Insurance

The amount of money you can receive if you cancel or surrender (meaning voluntarily terminate) your permanent life insurance policy is the cash value. If you’ve borrowed against the policy, any outstanding loan amount will be subtracted from the cash value. You may also see cash value called a cash surrender value or surrender value.

A child protection rider is additional coverage for your child, ensuring a payment in case of untimely death. It is typically term life insurance coverage that lasts until your child is between ages 22 and 30, depending on the policy, at which point it can be converted to a permanent life insurance policy. Child protection riders can be added to your policy for a very small premium.

If you send in your first premium payment with your application, a conditional receipt starts your coverage from the date of application, so long as you are approved. Without conditional receipt, your policy is considered effective once it is delivered. Conditional receipt is sometimes called conditional binding receipt.

The contestability period is typically a window of time during which an insurance company looks back at the application and issuing processes to investigate whether fraud or misrepresentation has occured.

If the primary beneficiary of your policy dies before you, and a new primary beneficiary is not named, the death benefit would be paid to a named contingent beneficiary.

The dollar amount your beneficiary receives upon your death is the death benefit. It may also be called your policy’s face amount or face value.

The term death taxes refers to any taxes levied on your property after you die. Federal death taxes are called estate taxes. If a state has a death tax, it might be called something different, such as an inheritance tax.

You may be able to add a disability income rider to your life insurance policy. If you become disabled and are unable to work, this rider provides income replacement through a monthly benefit payout.

Some employers offer free life insurance as an employee benefit. This is typically group life insurance in which the employee is automatically enrolled or signs up. The employer usually pays all, or most, of your premiums. Since most people do not stay with the same employer for their entire career, there are limits to this coverage. For instance, you might not be able to convert your group policy to an individual policy when you leave. Or, if you can, the premium cost could significantly increase.

Estate planning is the process of preparing for the transfer of your wealth and assets after you die. Assets can include life insurance payouts or the cash value built by a permanent life insurance policy. Your estate plan ensures your will and other intentions are enacted.

Your evidence of insurability is the proof, usually through an application process, that provides information of your health. That information shows you are eligible for certain types of coverage.

see Death Benefit

see Death Benefit

Your premiums are calculated on an annual basis, but you can choose to pay annually, semi-annually, quarterly or monthly. Keep in mind that paying annually is the most affordable option.

Sometimes called burial insurance, final expense insurance refers to a type of life insurance policy designed to cover the cost of funeral or cremation expenses for the policyholder. Generally, the death benefits for burial insurance range from $5,000 to $35,000. Your beneficiary may also choose to use the proceeds to pay for other final expenses such as medical bills, outstanding debts, or legal bills you may owe.

Your insurance policy may include a free look provision or free look period. This gives you a timeframe to decide whether you want to keep a policy. If you aren’t satisfied and wish to cancel, you receive a full refund.

If health concerns may affect your ability to qualify for permanent life insurance, you can consider a graded death benefit. Increasing percentages of the total death benefit are paid over a set time. So, for example, the first year the payout is limited to 25% of the total value, 50% the second year, 75% the third year, and 100% the fourth year and thereafter.

Group life insurance is a type of life insurance where a single contract covers an entire group of people. The policyowner is typically an employer or membership organization, and term life insurance is the most common type of group insurance. See employer-provided group life insurance.

A guaranteed acceptance life insurance policy typically offers smaller amounts of coverage at relatively higher costs. There are no health questions, and no medical exam is required. You cannot be turned down for coverage based on your health.

With a guaranteed insurability rider, you are able to purchase additional life insurance coverage at a later date without undergoing a medical exam or providing evidence of insurability.

see Guaranteed Acceptance Life Insurance

With an individual life insurance policy, the policyholder is usually the one who pays the premium and is the only person who may make changes to a policy.

The insured is the person whose life is being insured with life insurance. The insured often, but not always, owns the policy.

A term life insurance policy with a level premium means your premium payment remains the same for the duration of your contract.

see Simplified Issue Life Insurance

When you die, your beneficiary will receive the death benefit of your active life insurance coverage as a payout. With term life insurance, the death benefit is typically the face amount listed on your policy. With products that earn cash value or allow policy loans, the death benefit may be adjusted.

A permanent life insurance policy provides lifelong coverage for as long as you pay your premiums, even if you live to age 100 or beyond. Unlike term life insurance, permanent life insurance can also build a tax-deferred cash value.

If you have a life insurance policy, you are referred to as the policyholder. The policyholder is often the same as the insured.

see Policyholder

The payments you make on a life insurance contract are your premiums. Premiums can be paid monthly, quarterly, semi-annually, or annually.

Rating agencies are independent bodies that assess a life insurance company’s financial strength and ability to pay claims. These objective ratings analyze customer complaints, available cash flow, and acceptable risk. The ratings are like grades, so an A is better than a B. There are four agencies: A.M. Best, Fitch, Moody’s, and Standard & Poor’s. Each agency applies its own standards and grading scales. However, they are consistent in that the higher the rating, the better the agency has assessed the chances your insurer will be able to pay your benefit, regardless of when your family needs it.

With a return of premium rider, you can recover some or all of your term life insurance premiums if you do not die during your coverage term.

You can amend or change the coverage or terms of a standard insurance policy by adding a provision called a rider.

To determine your total premium, life insurance companies consider several factors. These include your age and gender, along with the amount and length of coverage. An additional factor is your risk classification, or risk class, which is based on the insurer’s underwriting guidelines. Your personal medical history, height/weight profile, medical exam, family history, motor vehicle record, participation in hazardous activities and smoking status all considered. Risk classifications names are fairly consistent throughout the industry and range from Preferred Plus or Preferred Elite to Substandard, but each insurance company has their own method of  determining who fits each risk.

Typically best suited to older adults or those with health problems, a simplified issue life insurance policy typically does not require a medical exam. However, the insurance company will ask more detailed medical questions and may view your medical records. You may be rejected for coverage if you have certain medical issues. You may also see this called no medical exam life insurance or guaranteed issue life insurance.

Under the suicide clause, beneficiaries receive only a refund of premiums, not the full coverage amount, if a policyholder commits suicide within a stated period of the policy issue date- typically two years. If an individual replaces a policy with a new one, the time period starts over.

Some employers allow employees to buy extra life insurance coverage, or supplemental group life insurance. Often you can buy three or four times your annual salary in coverage. For more coverage, you may have to complete a health questionnaire to show evidence of insurability.

When you surrender a life insurance policy, you either let it lapse or tell the company that you want to cancel. If a policy has a cash surrender value, you can receive that value in cash minus any penalties. Once you surrender a policy, the life insurance coverage ends.

see Cash Value

The cash value accrued by permanent life insurance policies is tax-deferred. This means the money is not taxed until it is accessed by you or your beneficiaries.

Adding a term conversion rider to your term life insurance allows you to convert your policy into permanent life insurance without undergoing a medical exam. There is likely a deadline by which you must convert or lose the option.

A term life insurance policy provides coverage that is designed for a specified period of time, such 10, 15, 20, 25, or 30 years. Unlike permanent insurance, term life insurance usually has no cash value.

Life insurance companies assess the risk of insuring you and set a cost (the premium) for your coverage in a process called underwriting.

One type of permanent life insurance is called universal life insurance. As with most permanent life policies, it remains in force as long as you pay your premiums, and it can build cash value. With a universal life policy, you may be able to increase or decrease the benefit and have some flexibility with premium payments.

A waiver of premium rider pays all life insurance premiums due on your policy if you become disabled. As a rider, it is not a guaranteed benefit on every policy. It is offered as an optional benefit on many term life insurance policies and may be available on permanent life insurance policies as well.

Whole life insurance is the most common type of permanent life insurance. It provides lifelong coverage as long as you pay your premiums. It can also build cash value on a tax-deferred basis. You can even borrow against this amount or surrender the policy for its cash value.