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Glossary of Insurance Terms

Cost of Insurance

“COST” is the difference between what you pay and what you get back. If you pay a premium for life insurance and get nothing back, your cost for death protection is the premium. If you pay a premium and get money back later on, such as a cash value, your cost is smaller than the premium. The cost of some policies, called "participating policies", can be reduced by dividends. Dividends are set by the company each year. Policies that do not pay dividends are called "guaranteed cost" or "non-participating" policies. Every feature is fixed so you know what your future costs will be. Premiums for participating policies are typically higher than guaranteed cost policies, but your cost may be higher or lower depending on dividends actually paid.

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Term Life Insurance

Term life insurance is insurance for a designated period of one or more years. Benefits are paid only if you die within that specified term. In general, this type of insurance pays the highest immediate benefit for your premium dollar.

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Renewable Term Policies

Some term policies are “renewable” for one or more additional terms, even if your health changes. Each time you renew, premiums increase. Before choosing term insurance, check premium rates for older ages and find out how long the policy can be continued. This is usually stated as “renewable until age _____.”

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Convertible Term Policies

Some term policies are also convertible. This means that before the end of the specified conversion period, you may choose to trade the term policy for a whole life or endowment policy—even if your health changes. Premiums for the new policy will be higher than the term policy rates.

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Whole Life Policies

Whole life insurance provides death benefits for as long as you live. The most common type of Whole Life Insurance is “straight” or “ordinary” life. With this kind of whole life insurance, your premium rates never change. It is important to note that ordinary life premiums can be much higher than term life insurance premiums, but they are smaller than the premiums you’d eventually pay if you kept renewing term policies in your later years.

Some whole policies allow you to pay premiums for shorter periods of time, such as 20 years, or until age 65. This usually results in higher premiums than with ordinary life, because the premiums are squeezed into a shorter time period.

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Whole Life Policies and Cash Values

Although whole life premiums are initially higher than term premiums, whole life policies develop “cash values”. Technically speaking, these are called “nonforfeiture benefits.” That means you do not lose the cash value if you stop paying premiums. The amount of cash value depends on the kind of policy you have, the amount of the death benefit it pays, how long you have owned it, and any loan interest charge or any surrender charges.

You may convert the cash value of your policy into actual cash, or you can use it to buy continuing insurance coverage. Cash value policies can also be used for collateral. The interest rate you will pay if you borrow from the insurance policy is printed on your policy. Any money owned in the form of a policy loan is deducted from the benefit paid when you die, or from the total cash value if you stop paying premiums.

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Surrender Cost Index

This index is useful if cash value levels are the most important features you are considering. If helps you compare costs if at some point in the future you choose to surrender the policy and collect the cash value.

Participating policies

Participating policies usually charge premiums that are higher than guaranteed policies, but your cost may be higher or lower, depending on the actual dividends paid.

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Net Payment Cost Index

Use this index if your primary concern is the amount of death benefit provided. It helps you compare future costs, such as in 10 to 20 years, if you continue to pay premiums and do not take the policy’s cash value.

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If there are other life insurance definitions you are not sure about, please contact your Gerber Life Insurance representative. We are here to assist you with all your life insurance needs.