Life Insurance Definitions​ & FAQs

Understand your life insurance policy and the optional features before you buy.

Premium

The cost of insurance coverage charged to the policyholder and paid to the insurer at the time of issue and in periodic payments thereafter in order to keep the policy in force.  

Death Benefit

The face amount of the policy payable to the beneficiary upon the death of the insured. The death benefit may be reduced based on any outstanding policy loans or unpaid premiums.

Waiver of Premium

For an additional fee, physicians may add a waiver of premium rider to their policy which allows the policyholder to forgo insurance premium payments in the event that he or she becomes critically ill, seriously injured, or disabled. This type of rider is sometimes known as a disability waiver rider. With this rider, a policyholder who suffers a qualifying disability can keep their policy in effect even if an illness or injury prevents them from earning income and paying their regular monthly insurance premiums. If and when the policyholder recovers from their disability, the policy insurance premiums will be reinstated. 

Waiver of premium riders typically include a waiting period of at least 6 months which must elapse after the onset of a disability before the policy’s insurance premium will be waived. There are also strict conditions to qualify for a waiver of premium rider, as a policyholder must meet certain health and age requirements. Serious pre-existing conditions will be permanently excluded from the coverage of the rider, and most riders include very specific definitions for “disability.” While some waivers may go into effect if the policyholder is too sick or injured to work in their profession of training and expertise, other versions of this rider may only waive insurance premiums if the policyholder is too disabled to work at all in any profession. 

It is important to note that a waiver of premium rider does not offer income replacement in the event of a disability, it simply eliminates the cost of insurance premiums while keeping the policy in effect. 

Term Conversion Rider

A Term Conversion Rider allows the policyholder of a term life insurance policy to convert their policy into a permanent policy (also known as a lifetime policy) by a specified deadline. By definition, term life insurance policies are only designed to last for a designated period of time. However, as the policy nears its guaranteed fixed price termination date, many policyholders may decide they wish to continue their life insurance coverage by converting to a permanent policy. 

A Term Conversion Rider can be added to a term life insurance policy at the time of purchase, often for no additional cost. This rider guarantees that you have the option to convert all or some of your policy benefits into a permanent policy by a designated date, with no additional medical underwriting. This feature allows a policyholder to continue to receive coverage based on their original health rating from the time they first purchased their term policy, regardless of any health conditions that may have arisen since the policy’s effective date. This guarantee is extremely important for anyone who has developed a serious health condition such cancer, heart disease, or diabetes, because it locks in coverage for a lifetime. If you wanted to purchase a policy after being diagnosed with one of these conditions, your options for life insurance would be slim to none. 

While a basic conversion rider does let you keep your future coverage options open, there are specific timeframes by which you must request a conversion. While the exact requirements may vary by insurance company, the following are examples of conversion periods for basic term conversion riders:

For a 10-year term policy, the policyholder must convert with the first 7 years
For a 15-year term policy, the policyholder must convert within the first 12 years
For a 20-year term policy, the policyholder must convert within the first 15 years
For a 30-year term policy, the policyholder must convert within the first 20 years

Extended Convertibility Options

For policyholders who wish to preserve the option to convert their term policy until beyond even the basic conversion periods, there are also conversion extension ridersFor an additional cost, the conversion extension rider allows policyholders to extend their opportunity to convert their policy. For example, while a basic term conversion rider on a 15-year term policy may require the policyholder to convert their coverage within the first ten years of the policy, a conversion extension rider would allow the policyholder to decide within the first 12 years of the policy (or until the policyholder reaches the age of 70, whichever comes first). A conversion extension rider must be purchased with the original policy, it cannot be added on later. This extension rider is usually very low cost for shorter term policies and well worth the price to add the additional years. Many of them provide an extension for the entire duration of a policy, even as long as 30 years.

Accelerated Death Benefit Rider

An Accelerated Death Benefit Rider is a special provision that allows policyholders to access a portion of their policy’s death benefits while they are still alive in the event that they are diagnosed with a terminal illness. This common policy addition is usually available at no additional cost. Accelerated death benefits will reduce the amount of money paid out to beneficiaries as if it is an advance on the future death benefit.

There may be a limit on the amount of accelerated death payouts that policyholders may receive while still alive. Typically, accelerated death benefits are not subject to income tax, although in some cases the payouts may be subject to fees and interest. In order to qualify for early payouts, the policyholder must provide medical certification that they are suffering from a qualifying condition. Accelerated Death Benefit Riders may have different names depending on the provider, or you may be able to choose between different types of Accelerated Death Benefit Riders specifically related to terminal, critical, or chronic illnesses. Let’s explore two common variants on the Accelerated Death Benefit Rider, the Critical Illness Rider and the Chronic Illness Rider.

Critical Illness Riders

A Critical Illness Rider is a type of accelerated death benefit rider which pays out benefits while the policyholder is still alive in the event of a critical illness diagnosis. A Critical Illness Rider will define specific conditions that qualify as a critical illness. Commonly covered diagnoses include stroke, kidney failure, ALS, and certain types of cancer. 

The accelerated payouts from a Critical Illness Rider can be used at the policyholder’s discretion, and these benefits go toward medical costs or basic living expenses.  Accelerated payouts are taken from the value of the policy’s death benefit, and the remaining value is disbursed as a lump sum to the beneficiaries if the policyholder passes away. Note: A Critical Illness Rider gives the insured individual the choice to accelerate their benefits in the event of a serious illness. If the insured opts not to collect early benefits, they can maintain their traditional benefit for the policy beneficiaries.



Chronic Illness Riders

Similar to a Critical Illness Rider, a Chronic Illness Rider is another provision offering accelerated death benefits in the event of a serious medical diagnosis. A Chronic Illness Rider allows the policyholder to receive benefits from their policy while still living, in the event that they suffer a disabling illness that prevents them performing at least two of the six Activities of Daily Living (ADLs). The six ADLs are eating, bathing, getting dressed, using the bathroom, transferring and continence.

Long-Term Care Rider

Doctors who do not wish to purchase separate long-term care coverage have the option to add a Long-Term Care Rider to their life insurance policy. Long-term care (LTC) refers to personal or custodial care for individuals who need assistance with basic daily activities, such as dressing, bathing, eating, using the restroom or moving around a home. Long term care includes support provided to an individual either in their home or in a facility such as a nursing home, and the cost of long term care is not covered by health insurance. 

A long-term care rider allows the policyholder to receive accelerated payouts from the death benefit if they require long-term care. These benefits may be funded with a lump sum payment or installments, and then any unused LTC money is paid out in the policy’s death benefit.  

If you’re interested in bundling your long-term care planning with your life insurance, ask your financial consultant about life insurance policies with an LTC rider. If you already have life insurance, it may be possible to add an LTC rider to your existing policy. 

Accidental Death and Dismemberment Coverage

An Accidental Death and Dismemberment Rider (AD&D) provides an increased benefit in the event that the policyholder suffers an accidental death or dismemberment. In the event of the unthinkable, an AD&D rider could provide up to double the payout, however, pay close attention to the fine print as these riders tend to include very restrictive language. 

In a typical AD&D rider, if you die as a result of an accident, the insurance company will pay up to twice the amount of the original death benefit. These riders include very specific language defining what events qualify as an accidental death. AD&Ds typically covers drownings, homicide, falls, machinery accidents, traffic accidents, and exposure to the elements. There are also restrictions relating to when the death can occur in order to qualify for AD&D benefits. For example, if the policyholder passes away from injuries related to an accident more than six months after the incident, they may not qualify for the larger payout.

The second portion of an AD&D rider relates to increased benefits in the event of dismemberment. In the event that a policyholder with an AD&D rider loses a limb (such as an arm, leg, foot, hand, or fingers) or the loss of use a body part (such as paralysis, loss of eyesight, or loss of hearing), the policy will pay out additional benefits while the insured individual is still living. An AD&D rider is not an accelerated death benefit rider, meaning the additional payouts received in the event of a dismembering accident will not reduce the death benefit paid out to the policy’s beneficiaries. However, policy language related to dismemberment coverage can also be exclusionary and restrictive. For example, some policies may pay out different amounts depending on how many limbs are lost in an accident. The specific terms of AD&D riders can vary significantly between insurance companies, so pay close attention to the specific situations that are and are not covered.

Child Protection Rider

Another rider choice offered by many life insurance companies is the Child Protection Rider (also known as a Child’s Life Insurance Rider). For an additional cost, Child Protection Riders offer value in two key ways: First, a financial cushion in the event that a child passes away. Second, when a child ages out of coverage, the policy can be converted into a permanent insurance policy as a gift for your child.

First, the Child Protection Rider offers a death benefit in the event that a child of the policyholder passes away. A child’s death is an unparalleled loss, but should the worst-case scenario occur, this rider is designed to offer financial support for parents during a time of unimaginable grief. A Child Protection Rider can cover funeral expenses, hospitals bills, and provide a degree of financial support if the parents need to take time off of work to grieve. 

Fortunately, the vast majority of policyholders will never need to use the benefits provided by a  Child Protection Rider. Each individual rider will specify a time frame of coverage, and most children age out of coverage in their early to mid-twenties. At this point, the policyholder usually has the option to convert their Child Protection Rider into a permanent life insurance policy. 

The Child Protection Rider serves as a great way to provide protection for children without having to go through a separate process to secure coverage for them individually.

Other Definitions

Accelerated Benefits Rider
In a life insurance policy, a benefit that pays a portion of the death benefit to an insured while living to offset the costs of care for a catastrophic illness or injury. Sometimes referred to as a Living Benefits Rider.

Adjustable Rate
An interest rate credited to the cash value of certain types of life insurance policies that adjusts according to a market index.

Agent
A person licensed by the state to sell insurance either as an independent agent who represents multiple insurance companies or as a direct agent representing one company. In either case, an agent is paid a percentage of premiums paid as a commission.

Annually Renewable Term
A type of life insurance policy that provides a death benefit with no cash value and is renewed each year with no evidence of insurability. The premium is adjusted upward each year based on the insured attained age.

Beneficiary
The individual or entity designated by the policyholder to receive the death benefit proceeds when the insured dies. A policyholder can name several beneficiaries which are often designated as a primary (first to receive benefits) and contingent (receives benefits if the primary beneficiary is already deceased).

Broker
A person licensed by the state to sell insurance. Because they have selling agreements with multiple companies, they can work on behalf of the client to search the market for the most suitable insurance products for their situation.

Cash Value
The savings component of life insurance in which a portion of each premium payment is applied. In life insurance policies, the cash value is allowed to accumulate tax-free. Over time, the cash value growth will have the effect of lowering the amount at risk for the insurer because, at the death of the insured, the death benefit is paid to the beneficiary but the cash value goes to the insured. Generally, cash values can be accessed by loans for any purpose while the insured is living, but any loans outstanding at the death of the insured will reduce the payable death benefit.

Conditional Receipt
An acknowledgment by the life insurer of a premium payment made by an applicant that also provides interim coverage while the application is being processed in underwriting. A conditional receipt can be revoked should underwriters uncover any medical conditions that might change the rating of the policy.

Conversion Privilege
A provision offered in certain life insurance policies to allow a policyholder to convert an existing policy into a different type of policy without evidence of insurability. The most common type of conversion is from a term policy into a permanent policy in which the new premium is based on the insured’s attained age at the time of conversion.

Decreasing Term Insurance
A type of term insurance in which the death benefit is scheduled to gradually decrease over the term of the policy. The insured pays a level premium because the cost of insurance decreases each year. Decreasing term insurance is often used to protect a mortgage.

Dividend
A cash payment made to policyholders from the profits of a mutual life insurance company. The profit comes from excess premiums collected to cover the current year’s insurance costs. Dividends can be received as cash, used to pay a portion of the premium or applied to the policy to purchase paid up additions of insurance.

Level Term Insurance
A type of term life insurance in which the death benefit and payable premiums are fixed and level over the term of the policy. Level term insurance policies are typically issued for terms of 10, 15, 20, 25, or 30 years. Premiums are higher for longer term policies.

Medical Examination
An examination required of applicants for life insurance for medical underwriting purposes. Depending on the amount of coverage applied for, a medical examination could include blood work, diagnostics, or even a complete physical examination. Examinations are typically conducted by a paramedical examiner in the home or office of the applicant.

Paid-Up Additional Insurance
An additional amount of fully paid up insurance purchased with policy dividends or additional premium payments. Paid up additional insurance increases both the face amount and the cash value of the policy.

Policy
A contract issued by an insurance company to a policyholder specifying the scope of the coverage provided as well as any limitations in the policy. Any endorsements or riders added to the policy become a part of the contract.

Preferred Risk
The status given to an individual applying for life insurance who meets the insurers criteria for more favorable premium pricing based on the person’s health condition, medical history, life style habits, and occupation.

Rider
An optional provision of a life insurance policy added at the request of the policyholder for an additional cost that provides expanded coverage or an additional benefit.

Section 1035 Exchange
A provision of the Internal Revenue Code that allows s policyholder to exchange one life insurance contract for another life insurance contract or annuity contract without triggering a tax consequence.

Separate Account
In a variable life insurance policy, an investment account is maintained separately from the general account of the insurer. Policyholders can invest in various types of investments among several separate accounts available within the policy; however, because they are separate from the general account, the policyholder assumes any risk associated with the investments.

Standard Risk
The status given to a person applying for life insurance who doesn’t qualify for the most favorable premium pricing based on the insurer’s underwriting criteria.

Sub-Standard Risk
The status given to a person applying for life insurance who, based on the insurer’s underwriting criteria has the indications of a higher risk because of medical condition, family history or a higher risk life style or occupation.

Term Life Insurance (Term Insurance)
A death benefit-only life insurance policy that provides a specific amount of coverage for a specific number of years (term), after which the policy will expire.

Underwriting
The process of evaluating the risks and assessing the costs of coverage on an applicant for life insurance. Underwriters consider a number of factors in their assessment including current medical experience as well as the company’s own experience with certain classes of insured.

Universal Life Insurance
A form of life insurance that combines lower-cost insurance with a separate cash value component that allows for greater flexibility in premium payments and the potential to earn higher yields. With a universal life insurance policy, the policyholder assumes the risk of higher insurance costs or lower yields that may require additional premium payments.

Variable Life Insurance
A life insurance contract with separate investment accounts allows policyholders to choose from among different types of investments for their cash value. The policyholder assumes any of the risks associated with the investments; however, with most variable insurance policies, the insurer will guarantee the initial death benefit to be paid regardless of the performance of the investment accounts.

Variable Universal Life Insurance
A life insurance policy that combines the features of a variable life insurance policy with a universal life insurance policy allowing for greater flexibility of premium payments and the potential for higher cash value growth. The policyholder assumes the risk of poor investment performance which could require additional premium payments in order to keep the policy in force.

Whole Life Insurance
A permanent form of life insurance with a guaranteed, fixed death benefit, a guaranteed, fixed premium, and a guaranteed cash value. Whole life insurance never expires as long as the premiums are paid.

Life Insurance Frequently Asked Questions

Life happens. We cannot predict the future, but we can be prepared for it. That is the purpose of insurance – to protect and provide for yourself and your loved ones if the unfortunate happens. Your life and disability insurance choices may make the difference in your family’s lifestyle after a tragedy strikes by paying the bills, financing children’s educations, and protecting your spouse’s retirement.

Premium and policy eligibility are based on age and current health status. Therefore, the best time to purchase a life insurance policy is when you are young and healthy. 

Physicians Thrive only offers what we view as the strongest and most comprehensive life insurance plans from the leading providers. We work with Banner Life, Guardian Life, John Hancock, Lincoln Financial, Mass Mutual, Met Life, Minnesota Life, Nationwide, Pacific Life and more.  

Get Free Life Insurance Quotes

When you receive your quotes, one of our experienced advisors will review the quotes, explain all your options and the verbiage in each policy in detail to help you create a customized plan that meets your needs and your budget. We will review each element of the plan and the cost associated with it to help you evaluate the value and build unique, cost-effective coverage tailored to your situation.

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