Life insurance and life settlements sometimes involve unfamiliar language. These plain-English explanations can help you better understand your policy and the options you may wish to explore.
You do not need to know every term before asking questions. This page is simply a reference to help you feel more comfortable with the conversation.
Accelerated Death Benefits
A feature in some life insurance policies that allows a portion of the death benefit to be paid while the insured is still living, generally when specified health conditions are met. Eligibility depends on the policy. Receiving these benefits generally reduces the amount remaining for beneficiaries. Certain payments may qualify for favorable tax treatment, subject to applicable requirements.
Beneficiary
The person or entity designated to receive the policy’s death benefit when the insured dies. A policy may have more than one beneficiary.
Cash Surrender Value
The amount the insurance company would pay the policyowner if a cash-value policy were voluntarily canceled, or “surrendered.” The amount available may be reduced by surrender charges, outstanding policy loans, and accrued loan interest. Not all life insurance policies have cash surrender value.
Death Benefit
The amount payable under a life insurance policy when the insured dies, subject to the policy’s terms. The amount actually paid may be affected by outstanding loans, interest, or other policy adjustments.
In-Force Policy
A life insurance policy that is currently active. “In force” means coverage has not ended; it does not necessarily mean that every premium has been paid, because coverage may continue during a grace period or under other policy provisions.
Insured
The person whose life is covered by the insurance policy. The insured and the policyowner may be the same person, but they do not have to be.
Lapsed Policy
A policy whose coverage has ended because required premiums were not paid or the policy did not have sufficient value to cover required charges, after any applicable grace period. Depending on the policy, reinstatement may be possible if certain requirements are met.
Life Settlement
The sale of an existing life insurance policy to a third party for a cash payment. A life settlement may provide more than the policy’s cash surrender value but less than its death benefit.
If a sale occurs, the buyer becomes the policyowner and beneficiary, assumes responsibility for required future premiums, and receives the death benefit when the insured dies. The former beneficiaries no longer receive the death benefit associated with the interest sold.insurance.ca
Life Settlement Broker
A professional who represents the policyowner in seeking or negotiating a life settlement with potential providers. The broker’s role is distinct from the buyer’s role. Applicable licensing or authorization requirements must be met.
Net Death Benefit
The amount payable upon the insured’s death after applicable deductions or adjustments, such as outstanding policy loans and accrued interest. This may differ from the amount originally shown on the policy.
Policyowner / Policyholder
The person or entity that owns the life insurance policy and holds the rights provided by the policy, such as the right to change beneficiaries, surrender the policy, or transfer ownership, subject to any restrictions. The policyowner is not necessarily the insured.
Premium
The payment required to maintain life insurance coverage. The amount and payment schedule depend on the policy. Some policies offer flexible premium arrangements, but sufficient funding is still necessary to keep coverage in force.
Surrender
The voluntary termination of a life insurance policy by its owner. If the policy has cash surrender value, the insurance company pays the amount available under the policy’s terms. Surrendering a policy is different from selling it through a life settlement.
Viatical Settlement
A sale of a life insurance policy involving an insured who is terminally or chronically ill. Certain proceeds may qualify for exclusion from federal taxable income, but specific requirements apply. A qualified tax adviser should review the circumstances before a transaction.
Have a Question About Your Policy?
You do not need to understand every insurance term to begin exploring your options.
If you have questions about an existing life insurance policy—or are considering surrendering it or allowing it to lapse—I’m happy to have a friendly, no-pressure conversation.
Call, text, or email me to get started. No pressure—just a conversation.
Mel Kaye
Life Settlement Broker
Call or text: 805-300-1769
Email: Life.Settlements@iCloud.com
Helping older policyowners explore potentially beneficial financial options before they surrender or allow an existing life-insurance policy to lapse.
These definitions provide general educational information, not legal, tax, or individualized financial advice. Policy provisions and applicable laws vary. A life settlement is not appropriate for everyone, and not every policy qualifies. Review your circumstances with qualified advisers before making a decision.