Glossary of Terms
Life insurance taken out on the partners of a business so that if one partner dies, the death benefit paid to the remaining partner(s) will fund the purchase of the deceased partner's share in the business. Buy-Sell insurance is generally accompanied by a buy/sell agreement that requires any surviving partner(s) to purchase the remainder of the business in the event of a partner's death.
Individual Retirement Account (IRA)
A retirement account to which you can contribute up to $4,000 (or 100% of your compensation, whichever is less) annually. IRAs allow your money to grow tax deferred and, depending on your personal circumstances, contributions may be tax deductible and withdrawals prior to age 59 1/2 may be assessed a 10% IRS penalty. Withdrawals from IRAs are taxed at then-current rates.
The life insurance phrase to describe the status of your policy. If your term life insurance policy is "In Force", then the premium payments have been made and you are currently protected.
Irrevocable Life Insurance Trust
An arrangement whereby life insurance is managed by one person or group (called the Trustee(s)) for the benefit of another. The person who owns the life insurance gives the policy to the trustees, who have legal title to it and have fiduciary responsibility to protect it for the future benefit of whoever the person names as his or her beneficiary.
Key Man Insurance
An insurance policy taken out by a business to compensate that business for financial losses that would arise from the death of an executive whose absence would cause the business significant to falter or close. The aim is to compensate the business for losses and help ensure business continuity.
The classification assigned to the prospective insured during the underwriting process that indicates what premiums she or he will pay for their life insurance coverage.
Second To Die/Survivorship Life
Similar to Universal Life except that it insures two people. The policy is specifically designed to provide funds at the death of the second spouse to cover estate-tax liability (in most situations, federal estate taxes are not significant until the second spouse dies). This type of policy can provide needed funds so that the family's estate is preserved for heirs.
Single Preminunm Immediate Annuity
A policy purchased with a single premium payment that makes regular payments to the insured for a specified period of time. The premium consists of a portion of the premium paid and earned interest.
Term Life Insurance
Term life insurance provides coverage for a limited period of time, specified as the term. Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis. When the term is up, the insured can either drop the policy or pay annually increasing premiums to continue the coverage. If the insured dies during the term, the death benefit will be paid to the beneficiary. There is no cash value to term insurance.
Underwriting is a set of guidelines that insurance companies use when processing an application that determines the appropriate rate class of the prospective insured and can then define the appropriate premiums for the life insurance policy.
Universal Life Insurance
A policy that remains in force for the insured's lifetime, whereby premium payments above the cost of the insurance are credited to the cash value of the policy, minus appropriate fees. The cash value is tied to the performance of the insurance company's entire asset account portfolio.
Whole Life Insurance
A life insurance policy that remains in force for the insured's whole life as long as premiums have been pay correctly. Cash value is based on the performance of the company's asset portfolio.