Introduction:

Understanding the terminology used in life insurance is essential for making informed decisions about your coverage. This glossary provides clear and simple definitions for some of the most common terms you'll encounter.

Glossary of Terms:

A

Accelerated Death Benefit Rider: A feature that allows you to receive a portion of your life insurance death benefit while still living if you meet certain criteria, such as being diagnosed with a terminal illness.

Agent: A licensed professional who sells insurance policies. They represent the insurance company and help clients choose appropriate coverage.

Annually Renewable Term (ART): A type of term life insurance where the premium increases each year as the insured ages.

Applicant: The person applying for a life insurance policy.

Assignee: The person or entity to whom the policy owner transfers their rights or ownership of the policy.

B

Beneficiary: The person, people, or entity designated to receive the death benefit from a life insurance policy upon the insured's death.

Broker: An insurance professional who represents the buyer rather than a specific insurance company. They can shop around for the best policies from various insurers.

Burial Insurance: See Final Expense Insurance.

C

Cash Value:The savings component of some permanent life insurance policies (like whole life and universal life) that grows over time on a tax-deferred basis and can often be borrowed against.

Claim:A formal request to the insurance company for payment of the death benefit or other benefits covered under the policy.

Contestability Period:A period, usually the first two years of a life insurance policy, during which the insurance company can investigate and potentially deny a claim if they discover misrepresentation on the application.

Convertible Term Life Insurance:A term life insurance policy that gives the policyholder the option to switch to a permanent life insurance policy within a specified timeframe without a medical exam.

Coverage: The amount of financial protection provided by the life insurance policy, also known as the death benefit.

D

Death Benefit: The amount of money paid to the beneficiary(ies) upon the death of the insured.

Decreasing Term Life Insurance: A type of term life insurance where the death benefit decreases over the policy's term, often used to match the declining balance of a mortgage.

Dividend: A return of excess premiums paid by policyholders in participating life insurance policies (common with some whole life policies). Dividends are not guaranteed.

E

Endorsement: See Rider.

Estate: The total property (real and personal) that a person owns at the time of their death.

Estate Planning: The process of arranging for the management and distribution of your assets after your death.

Exclusion: A condition or circumstance specified in the insurance policy for which the insurer will not pay benefits.

F

Face Amount: See Coverage or Death Benefit.

Final Expense Insurance: A type of permanent life insurance with a smaller death benefit designed to cover funeral and burial costs and other end-of-life expenses. Also known as burial insurance or funeral insurance.

Free Look Period: A specified period after a life insurance policy is delivered to the policyholder during which they can review the policy and cancel it for a full refund.

Funeral Insurance: See Final Expense Insurance.

G

Grace Period: A period after the premium due date during which the policy remains in force even if the premium has not been paid. If the premium is not paid by the end of the grace period, the policy may lapse.   

Guaranteed Insurability Rider: A rider that allows the policyholder to purchase additional life insurance coverage at specified times in the future without providing evidence of insurability (i.e., without a medical exam)

Guaranteed Issue Life Insurance: A type of life insurance policy that guarantees acceptance regardless of the applicant's health, although it typically has lower coverage amounts and higher premiums.

H

Hazardous Occupation/Hobby: Certain jobs or recreational activities that are considered to increase the risk of death and may result in higher life insurance premiums or policy exclusions.

I

Indexed Universal Life Insurance (IUL): A type of universal life insurance where the cash value growth is linked to the performance of a specific market index, such as the S&P 500, with caps and floors on potential gains and losses.

Insurable Interest: A legitimate financial interest in the continued life of the insured. This is a requirement for purchasing a life insurance policy on someone else.

Insured: The person whose life is covered by the life insurance policy.

Insurer: The insurance company that issues the life insurance policy.

K

Key Person Insurance: Life insurance taken out by a business on a key employee whose death or disability would cause significant financial loss to the company. The business is the beneficiary.

L

Lapse: The termination of a life insurance policy due to non-payment of premiums within the grace period.

Life Expectancy: The average number of years a person of a given age and health status is expected to live. This is a key factor in determining life insurance premiums.

Liquidity: Assets that can be easily converted into cash. Life insurance death benefits provide liquidity to beneficiaries.

M

Medical Underwriting: The process by which the insurance company assesses the applicant's health and medical history to determine their risk level and the appropriate premium

Misrepresentation: Providing false or inaccurate information on a life insurance application. This can lead to claim denial or policy cancellation.

Mortgage Protection Insurance: A type of life insurance designed to pay off the outstanding balance of a mortgage if the insured homeowner dies.

N

Net Death Benefit: The actual amount of money the beneficiary receives after any outstanding loans or withdrawals against the policy's cash value are deducted.

Non-Guaranteed Elements: Aspects of a life insurance policy, such as cash value growth or dividends, that are not guaranteed by the insurer and can fluctuate based on market conditions and the insurer's performance.

Non-Participating Policy: A life insurance policy that does not pay dividends.

O

Owner: See Policy Owner.

P

Participating Policy: A life insurance policy issued by a mutual insurance company that may pay dividends to policyholders.

Permanent Life Insurance: Life insurance that provides coverage for the entire life of the insured (e.g., whole life, universal life).

Policy: The written contract between the insurance company and the policy owner outlining the terms and conditions of the life insurance coverage.

Policy Anniversary: The date each year that marks the beginning of a new policy year.

Policy Loan: A loan taken out by the policy owner against the cash value of a permanent life insurance policy.

Policy Owner: The person or entity that owns and controls the life insurance policy. They have the right to make changes to the policy, such as beneficiary designations and surrenders.

Premium: The regular payment made by the policy owner to keep the life insurance policy active.

Primary Beneficiary: The first person or entity designated to receive the death benefit.

R

Rated Policy: A life insurance policy issued at a higher premium than standard due to the insured's health conditions or other risk factors.

Reinstatement: The process of restoring a lapsed life insurance policy to active status, subject to certain conditions and payment of back premiums.

Rider: An optional addition to a life insurance policy that provides extra benefits or modifies the policy's terms (also known as an endorsement or attachment).

S

Second-to-Die Life Insurance: See Survivorship Life Insurance.

Settlement Options: The ways in which the death benefit can be paid to the beneficiary (e.g., lump sum, annuity).

Simplified Issue Life Insurance: A type of life insurance that requires answering a few health questions but typically does not involve a medical exam. Coverage amounts are usually limited.

Standard Risk: An applicant for life insurance who has an average life expectancy based on their age, health, and lifestyle.

Substandard Risk: An applicant for life insurance who has a higher-than-average risk of death due to health conditions or other factors and will likely pay higher premiums.

Suicide Clause: A provision in most life insurance policies that excludes the payment of the death benefit if the insured dies by suicide within a specified period after the policy is issued (usually two years).

Surrender Value: The cash value of a permanent life insurance policy minus any surrender charges imposed by the insurer if the policy is terminated early by the policy owner.

Survivorship Life Insurance: A life insurance policy that covers two individuals (typically a married couple) and pays the death benefit only after the second person dies. 

T

Term Life Insurance: Life insurance coverage for a specific period of time, or "term" (e.g., 10, 20, or 30 years). If the insured dies within that term, the death benefit is paid.

Third-Party Administrator (TPA): An entity that processes insurance claims or handles other administrative tasks for an insurance company or self-insured plan.

Trust: A legal arrangement where assets are held by a trustee for the benefit of a beneficiary. Trusts are often used in estate planning in conjunction with life insurance.

U

Underwriting: The process by which an insurance company assesses the risk of insuring an applicant based on factors like age, health, lifestyle, and financial information.

Universal Life Insurance (UL): A type of permanent life insurance that offers flexibility in premium payments and death benefit amounts, along with a cash value component that grows based on interest rates.

Uninsurable: An applicant for life insurance who is deemed to have too high a risk of death and is therefore not offered coverage by the insurance company.

V

Variable Life Insurance (VL): A type of permanent life insurance that has a death benefit and cash value, where the cash value can be invested in various sub-accounts chosen by the policyholder, offering potential for growth but also investment risk.

Variable Universal Life Insurance (VUL): A type of universal life insurance that also offers investment options for the cash value, combining the premium and death benefit flexibility of universal life with the investment choices of variable life.

Viatical Settlement: The sale of a life insurance policy by the policy owner to a third-party for a lump-sum payment that is less than the death benefit but more than the cash surrender value. This is typically done by individuals with a terminal or severe illness.

W

Waiver of Premium Rider: A rider that can be added to a life insurance policy stating that the insurance company will waive premium payments if the policyholder becomes totally disabled.

Whole Life Insurance: A type of permanent life insurance that provides lifelong coverage with a guaranteed death benefit and a cash value component that grows over time on a tax-deferred basis.

Y

Yearly Renewable Term (YRT): See Annually Renewable Term (ART).

Z

Zero Coupon Bond: While not directly a life insurance term, it's a type of investment that might be held within a variable or universal life policy's sub-accounts. A zero coupon bond does not pay periodic interest but is sold at a discount to its face value, which is received at maturity.