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Haven Life Guide to Complicated Life Insurance Terms | Blog



We try to make life insurance less difficult. A place to start? Defines our industry's complicated but important terminology.

No matter how easy you make life insurance, there will always be some terms that are confusing. It's just the nature of the animal. In a way, part of our job is to take the inherent complications of life insurance, including the jargon that surrounds our industry, and translate for you. After all, you and your loved ones are the people who are actually affected by your life insurance, so the least we can do is make sure you understand what it's about.

In fact, most of what we write and post here has to do with demystifying our industry – that's why we have an entire section devoted to the basics of life insurance. (We also have one called "Shopping for Life Insurance", which also contains several articles dedicated to defining key terms.) And yet there are some esoteric words and phrases – okay, more than a few – that don't come around all that often. , but when they do, they can be super confusing. Think of these as the deep cuts of the life insurance industry – the words that true aficionados (or actuaries) know and understand.

With this in mind, we asked our best customer success team to learn what life insurance terms they are most often asked about. Here's what these team members told us, and what these terms, you know, really mean .

In this article:

Decreasing term

Simply put, a decreasing term life insurance product is a type of life insurance where the coverage amount gradually decreases during the insurance period. With decreasing maturity, the benefit is greatest when you start covering (the time when your family needs it most) and gradually decreases over the length of insurance when things like your personal income grow and your expenses (think mortgages or student loans) decrease as an insurance owner.


Per Stirpes

Before we define this term, let's think about why you buy life insurance in the first place. It is so that, in the unfortunate event of your death, your loved ones will be taken care of financially – that is why the amount of coverage you buy should be sufficient to cover their needs, from paying down debts or a mortgage to future tuition costs, for everyday expenses such as clothes and food.

So of course it is quite important that you identify who exactly will receive your death benefit, otherwise known as your beneficiary. But you may have wondered – what happens if something happens to them before something happens to me? This is where it gets complicated. For example, if you have several adult children, and one of them precedes you, standard practice (so-called per capita) means that your death distribution will be divided between your named beneficiaries – probably only your surviving children . It's not perfect if your deceased child had children of their own – children you probably want your death benefit to take care of – who would not receive a penny if you did not specifically mention them as beneficiaries of your life insurance company. Instead, your policy would be split between your surviving children.

This is where per stirpes comes in. The idea is that if something happens to your beneficiary before you die, your death benefit will be paid to that beneficiary's heirs. (In Latin, per stirpes means "of roots", in life insurance it means that you pay your death benefit to the next of kin of your recipients if your recipient has died or otherwise cannot receive the benefit.)

Why would you need it? Let's use an example. Let's say you have appointed your two children as your life insurance recipients. If one of your children predates you, per stirpes would prescribe that their share of your life insurance cash benefit goes to their heirs. Without per stirpes, 100% of your death benefit would go to your second living child.

If per stirpes is something you want to use with your policy, contact our customer success team and they can help you through the process.

Double Compensation

The only life insurance period that shares a name with an Oscar-winning film (so far), double compensation refers to the payment of an additional death benefit in the event of accidental death. (If you've seen the movie – and you should, it's great – you might remember that it's a conspiracy to murder someone so that it looks like a mistake, allowing the killer to get some extra scratches. And you know, get away with Murder.) This extra benefit can be as much as the nominal value of the police – hence double in "double" compensation.

This rider is often part of an unintentional death and division policy, which covers a range of cruel injuries. in addition to deaths. This is usually offered by a life insurance company as a low cost supplement to a life insurance policy. Learn more about whether this type of insurance plan makes sense to you here.

TLIC (Temporary Life Insurance Contract)

Welcome to your first alphabet soup course. This special "dish" refers to the temporary life insurance coverage that you can receive during the important time after you have applied for a life insurance plan (including taking a medical examination) but before your insurance is in place. (After all, something can happen to you under the short window.)

If you qualify for temporary life insurance coverage, it's a bit like … well, an appetizer. You usually get the same coverage at the same monthly premium – and as soon as your first payment goes through, you get TLIC. Think of it as a bridge between your past, uncovered life and the abundant, relaxing, completely uncovered life you are living.

Best of all, this metaphorical bridge is not metaphorically risk-free – the cost is either rolled into your first life insurance premium or reimbursed (if you are rejected for any reason).

MEC (Modified Endowment Contract)

And now, for your dessert course in alphabet soup (or maybe it's more of a linguistic gazpacho?). However, this is particularly complicated, given that it applies to the IRS, federal tax law limits and the 1988 Technical and Miscellaneous Revenue Act (TAMRA) and the seven-wage test defined there. Should we assume you need a refresher?

Basically, this is the deal: If you pay more life insurance premiums under a cash value insurance (such as a permanent life insurance policy or full life insurance policies) than the law allows, the tax benefits of such a policy will be limited. And your life insurance will legally be considered a modified capital agreement (or MEC). (Obviously, people used life insurance before 1988 to hide the revenue from the tax authorities. What can we say? The 80's was a high time.)

This can have significant consequences if you use your life insurance as a means of investment. Next time you are in a slow moment at a cocktail party – do you remember them? – feel free to bring up TAMRA & # 39; 88 and dazzle your friends with your finance policy. (Or … maybe not.)

Compensation

As one of our members of the Customer Success Team put it: “I think a major pain point in explaining compensation is that many states have their own unique definition of what is considered be a substitute, so answering the question completely requires state-specific knowledge. In other words, this is not a term with a universal definition, which is what makes it so complicated to determine.

But basically you can start with this: Life insurance coverage is not a "put it and forget it" Buy, something you think about just once and then leave it alone until you need it (or better yet, do not need it) .Is instead, it is something where your needs can vary over the years and even decades that follow your purchase.You can be promoted or have children, buy a house or take debts – anyone or everyone of these things can change how much coverage you need.

At the same time, if all policyholders constantly changed their insurance policies, the insurance industry itself would settle – after all, the basic idea is that a pool of insureds pays a steady interest rate in a pool, and then Insurers take money from that pool to cover your beneficiaries if something happens to you.If that pool constantly wins and loses value, the reliability and predictability that helps both insurance companies and insured people would evaporate. [19659005] So where does the compensation come in? Compensation is a word to replace your policy – to get new coverage that replaces your existing coverage. This is a highly regulated practice, largely to protect consumers. Getting a new insurance policy can restart the competition period, usually a two-year period where the insurer can contest a claim if the insured dies not long after purchasing an insurance policy. More complex insurances, such as full life or universal life insurances, include the actual cash value – replacing these insurances can cost you significant money in fees. (In accordance with its name, a fee is charged when you "hand over" your insurance or withdraw cash value over a certain amount within a certain time. These fees tend to decrease over time – meaning you pay more to end a policy rather than later.)

An option if you need additional coverage is to … purchase additional coverage. (Keep in mind that you may need to take a new medical examination to complete additional coverage and of course you will get older, so your rate of additional coverage will probably be higher.) This eliminates the risk of replacing a policy and generally does not require learning and navigation in your state legal considerations, in the same way as substitutes do.

1035 Exchange

Sure, it sounds like a ramp to the Interstate ("first, go on the 1035 Exchange, then go south until you meet Peoria …"), but it actually originated in another department within the Federal Government: Internal Revenue Service. It refers to the section of the law that allows the tax-free transfer of a certain insurance product, including a life insurance, for another of the same kind. (And yes, this connects to the compensation conversation directly above this.) [19659005] There are rules and regulations about what does and does not qualify for a 1035 replacement, so if you are considering trying to exchange your policy for another, consider talking to a tax advisor to understand the potential consequences of doing so.

Insurance age

It turns out that you are younger than you think. Or maybe older. Anyway. The point is that for many life insurers, your age is the age you are closest to. That is, if you n the next birthday is in two months, an insurance company will round up. If your last birthday was two months ago, the insurer … will consider you your actual age, more or less. The reason for this is that physically, if you are 32 and a half, you are closer to being 33 than 32, and your insurer will classify you accordingly.

This difference means that you may experience a slightly higher interest rate when you are quoted for a monthly life insurance premium. But hey, if you're just shy about your half birthday, it's just one reason why the best time to buy life insurance is as soon as possible.

Paid supplements

Paid supplements (or paid-up additional insurance) is a way to buy additional insurance with dividends. The point here is that you pay premiums, your insurer pays you dividends, you use these dividends to buy more insurance, that additional coverage in turn can earn dividends, which you can then use to buy even more coverage. Think of it as the circle of life … insurance.

It is worth noting that dividends are not guaranteed, the insurance company can declare them and usually they are paid only on whole life insurance policies.

Well, there you have it. You are now about to become a certified expert in complicated life insurance terms. The next step in your education? Apply for coverage to protect you and your family financially. And maybe plan a movie night with Double Indemnity to celebrate.

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About Louis Wilson

Louis Wilson is a freelance writer whose work has appeared in a wide range of publications, both online and in print. He often writes about travel, sports, popular culture, men's fashion and grooming and more. He lives in Austin, Texas, where he has developed an unlimited passion for breakfast tacos, with his wife and two children.

Read more by Louis Wilson

Our Editorial Policy

Haven Life is a customer-centric life insurance agency supported and wholly owned by the Massachusetts Mutual Life Insurance Company (MassMutual). We believe that navigating life insurance decisions, your personal finances and your general well-being can be refreshingly easy.

Our Editorial Policy

Haven Life is a customer-centric life insurance agency that is supported and wholly owned by the Massachusetts Mutual Life Insurance Company (MassMutual). We believe that navigating life insurance decisions, your personal finances and your general health can be refreshingly easy.

Our content is created for educational purposes only. Haven Life does not support the companies, products, services or strategies discussed here, but we hope they can make your life a little less difficult if they suit your situation.

Haven Life does not have the right to provide tax, legal or investment advice. This material is not intended to be provided and should not be relied upon for tax, legal or investment advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

Our information

Haven Term is a term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual. Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Life Insurance Issue (ICC19PCM-SI 0819 in certain states, including NC) issued by C.M. Life Insurance Companies, Enfield, CT 06082. Numbers and functions for insurance forms and riders may vary by state and may not be available in all states. Our California agency license number is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best company as A ++ (Superior; top category 15). The rating is from Aril 1, 2020 and may change. MassMutual has received different ratings from other rating companies.

Haven Life Plus (Plus) is the marketing name of the Plus Rider, which is part of the Haven Term policy and offers access to additional services and benefits free of charge or at a discount. The driver is not available in all states and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made available under Plus Rider, which are provided by third party providers (partners). For more information about Haven Life Plus, visit: https://havenlife.com/plus.html

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