Common Whole Life Insurance Terms & Definitions

By Compuquotes Team on June 7th, 2008

Those who are uninitiated into the world of insurance might find a standard contract a little intimidating. Insurance companies have their own lexicon, and this can trip up laypersons shopping for insurance. The particularly confusing world of whole life insurance has its own common terms. Understanding them can shed some light upon

Glossary of Whole Life Insurance Terms

  • Dividends: money paid back from a premium. There are a number of reasons an insurer will pay out a dividend, but usually it is money left over after the fees, charges, and investment goals have been met for the policy in a given period.
  • Death benefits: the money the beneficiary receives upon the death of the insured. Most policies have a guaranteed death benefit amount that is supplemented by investment income overtime.
  • Estate Planning: taking out a whole life insurance policy in order to cover real estate costs. Many people worry that their family members won't be able to pay outstanding debt on a property or afford the taxes on a property after their passing. Some whole life insurance plans can be used to offset thee costs.
  • Indeterminate Premium: an adjustable premium. Under these contracts, the premium can be calculated based on a number of factors. These usually include mortality estimates and investment projections. Most of these plans have a limit that the premium cannot exceed.
  • Level Premium: a fixed premium. In this case, the premium is slightly higher in the initial years of the policy but never goes up. The extra money paid at the beginning is used to cover the cost of the policy in later years.
  • Limited Payment Insurance: a plan in which premiums are only required for a few years. The policy still covers the insured for life, but they only have to pay a certain number of premiums. For this reason, the premiums are much higher than in other whole life insurance plans.
  • Living Benefits: policy money used by the insured. This refers to the withdrawals made by the insured when their need for insurance goes down or they are in need of funds. Living benefits may be paid back as loans or deducted from death benefits.
  • Non-Participating Insurance: a low maintenance plan with fixed premiums. Since the cost of this plan is level and relatively low, it does not pay dividends.
  • Participating Insurance: a policy that pays out dividends. These plans can have different types of premiums.
  • Retirement Funding: the dissolution of the policy to supplement retirement income. Those who no longer need death benefits because of the death of a family member or other circumstances can use their policy to fund their retirement.
  • Single Premium: an outright purchase of a policy. A policy can rarely be obtained with only one premium. Obviously, the amount of the payment is rather large, but can vary. Benefits and loans are immediately available to the insured in this case, but the benefits will grow overtime as the money is invested.
  • Split Dollar Agreement: a policy placed on an employee by their employer. The employer receives the greater of their premiums or the cash value of the policy. The beneficiary receives the remaining funds.

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