The ABCs of Life Insurance: A–E

Accelerated Death Benefit Rider: A rider that lets the policyholder collect a portion of the policy’s death benefit if he or she becomes terminally ill with a short life expectancy, such as one year. The proceeds can be used for anything, such as paying medical bills or living expenses.

Buy-Sell Agreement: Also known as a buyout agreement, it is a binding contract for the transfer of business ownership to the remaining owners at the death, disability or retirement of an owner. The transaction is typically funded through a life insurance policy carried on the lives of each individual owner. An insured buy-sell agreement is frequently recommended to ensure the contract is properly funded and guarantees there will be money when the buy-sell event is triggered.

Bonus term

Beneficiary: The person or party named by the owner of a life insurance policy to receive the policy benefit.

Cash Value Life Insurance: A type of policy that accumulates value during the policyholder’s lifetime and pays out upon the policyholder’s death. The interest and earnings on the policy are not taxable, and it can be used as a fund from which to borrow and as a means to pay policy premiums later in life. Whole life, variable life and universal life are all types of cash value life insurance. Also known as permanent life insurance because it provides coverage for the policyholder’s entire life, while term life is only in force for a specified period.

Bonus term

Convertible Term: A type of term life insurance that can be converted into permanent insurance without a medical exam and regardless of an insured’s physical condition.

Disability Insurance: Also called disability income insurance, this type of policy provides a portion of income lost as the result of a total or partial disability caused by either an accident or an illness that renders the insured unable to work at his or her regular employment.

Just the facts

• 1 in 4 of today’s 20 year olds will become disabled before they retire. Source: Social Security Administration, Fact Sheet, March 2011
• 43% of all 40 year olds will have a long-term disability event prior to age 65.  Source: JHA Disability Fact Book, 2008

• Less than 5% of disabling accidents and illnesses are work-related. The other 95% are not, meaning workers’ compensation doesn’t cover them. Source: Council for Disability Awareness, Long-term Disability Claims Review, 2011

Estate Planning: The process of arranging for the orderly transfer of an individual’s assets in the event of incapacitation or death. A good estate plan minimizes taxes, expenses and delays, and assures the individual’s assets reach intended beneficiaries. It coordinates what will happen with property, investments, a business, life insurance, employee benefits and other property. Typically set up with the help of an attorney experienced in estate law.