Your clients likely aren’t in the habit of talking about final expense or impaired risk. And a hybrid? Isn’t that a type of car? Take a look at our series of slideshows offering easy definitions for life insurance terms you might be struggling to explain to prospects.
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Final Expense Life Insurance: A permanent life insurance product with level premiums where the proceeds are used to pay off final expenses, such as funeral costs, medical bills or other associated expenses. Also called burial insurance, final expense policies are typically inexpensive and offer relatively small death benefits. They often require no medical exam and are typically favored by seniors on fixed incomes as an economical way to cover final expenses.
Free Look Provision: An individual life insurance and annuity provision that gives the policy owner a stated time, typically 10 days after policy delivery, in which to cancel the policy and receive a full refund on the initial premium payment.
Guaranteed Issue Life Insurance: Often marketed to the elderly and people with serious medical conditions, guaranteed issue policies provide coverage without any medical examination. Unlike simplified issue policies, guaranteed issue policies also don’t require the applicant to answer any medical questions. Most have small face values (less than $20,000), and because only age, gender and location are used to set premiums, costs tend to be very high, making it an undesirable option for relatively healthy people.
Group Life Insurance: A term life insurance policy issued to a group of people, usually through an employer, union or association. Individual proof of insurability is not a consideration in underwriting, which is based on the size, turnover and financial strength of the group.
Hybrid Product: A combination of two or more types of financial products. In the life insurance world, a hybrid product combines the benefits of a life insurance policy or annuity with a long-term care insurance policy. Also called combo or linked benefit products, hybrids can work for many people unwilling to purchase traditional LTCI coverage due to the cost. They have gained in popularity since a 2010 law made distributions from life insurance and annuities tax free when used to pay nursing home costs.
Impaired Risk: Term used to describe the condition of a person who would be at higher risk for life insurance due to his or her physical condition or history. It is also used to describe a person who participates in hazardous activities, such as skydiving.
Just the facts
Some life insurers offer better prices for people with heart disease or diabetes than other companies. Others are more lenient when it comes to cigar use or tobacco chewing. And still other companies will quote better rates for nonmedical risks, such as aviation, scuba diving or foreign travel. Many people with impaired risk enlist the help of impaired risk specialists to help them find the best policy for their situation.
Irrevocable Life Insurance Trust (ILIT): A trust set up with a life insurance policy as the asset, allowing proceeds from the policy to be exempt from the estate tax upon the death of the insured. The significant estate tax savings can make an ILIT appealing to those with large life insurance policies and high net worth.
Joint Life Insurance Policy: A term or permanent policy insuring two or more people. It can typically be set up to pay out after the first person on the policy dies or after all people on the policy have died. Premiums are significantly higher than for policies that insure one person because the probability of having to pay a death claim is much higher. Death benefits are also typically larger.
Just the facts
- A first-to-die joint life insurance policy pays out to the remaining spouse when the first spouse dies and the policy ends.
- A second-to-die joint life insurance policy pays out to the named benficiary(ies) only after the second spouse dies.
- In the event both spouses die at the same time with either first-to-die or second-to-die, the death benefit is paid to the beneficiary(ies).