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Financial Literacy - Insurance
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Understanding insurance needs

Glossary of life insurance terms

It's not a fun topic, but ensuring that dependents are cared for in the event of the untimely demise of a breadwinner has to be faced. Check this glossary for clarification if life insurance terms have you stumped.

8 must-know life insurance terms
1. 5.
2. 6.
3. 7.
4. 8.

1. Cash value -- The cash built up in the savings component of a permanent life insurance policy.

2. Mortgage life insurance -- A term policy that pays off the mortgage if the borrower dies.

3. Permanent life insurance -- Permanent life insurance is an umbrella term for insurance that lasts as long as you live (as opposed to "term insurance," which lasts for a set period). Within the category of permanent life insurance are a variety of policy types such as cash value, whole life and universal life, a type of insurance that combines a death benefit, in which funds are paid to the beneficiary upon your death, with a tax-sheltered savings plan that creates an accumulating cash value. It is called permanent life insurance because the policy is open-ended and does not have to be renewed or converted, unlike term insurance, which is in force for a specified period of time. The policy offers a fixed premium, but also carries significant fees.

4. Living benefits rider -- Provision on a life insurance policy that allows the insured to tap into the benefits to cover long term care or expenses associated with a terminal illness.

5. Term life insurance -- Also known as MI or PMI (for private mortgage insurance). A policy that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Although mortgage insurance protects the lender, it is paid monthly by the borrower. Mortgage insurance usually is required if the down payment is less than 20 percent of the sale price.

6. Whole life insurance -- Life insurance policy that remains in force as long as premiums are paid. A built-in savings component builds a cash value. There is a guaranteed death benefit, set premiums and often a minimum guaranteed rate of return.

7. Universal life insurance -- A form of whole life insurance in which part of the premium goes to the insurance component providing the death benefit and the excess is invested in fixed-income and interest-bearing instruments.

8. Universal variable insurance -- An insurance policy where the death benefit and cash value fluctuate in response to the performance of underlying investments. The policyholder chooses the investments and the investment amount.

View glossary archive
-- Posted: Aug. 20, 2007
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