Life Insurance Glossary

Accelerated Death Benefit: An option that potentially allows for a terminally ill person to receive their death payment while still alive.

Accidental Death Benefit: If an accident occurs that causes the death of the insured, this is the benefit that is paid to the beneficiary.

Adverse Selection: Because people with poor health are the most likely to apply for insurance, the issuers would rather find clients on their own that may be healthy, and this is Adverse Selection.

Age at Issue:Policy holder’s age at the time the policy becomes effective rounded to their nearest birthday.

Agent: An employee of an insurance company whom is licensed to sell and create insurance policies.

Annuitant: When a lifetime annuity is to be paid, the annuitant is the person whose lifetime is used to determine the length of payments.

Annuity: Guaranteed insurance payouts that begin at a certain time.

Application: The documents asking to be issued coverage.

Beneficiary: The designated person to receive a payout upon the policy holder’s death.

Beneficiary (contingent): The recipient of the death benefits if the primary beneficiary dies.

Broker: Someone who sells insurance from several different companies.

Broker-Dealer: Someone who is licensed to sell not only insurance, but also securities such as mutual funds.

Cash Surrender Value: If a policy is ended by a reason that is not death, this is the amount the policy is worth.

Cash Value: What you would receive if you cashed in your policy prematurely.

Cash Value/Cash Surrender Value: The financial value of your policy if cashed in before death.

Contestability Period: If a claim is made within a certain amount of time of the initial application and facts were misrepresented, during this period the company is not obligated to pay out the claim.

Contestable Clause (or Incontestable Clause): A maximum of a two year period where benefits do not have to be paid if information was inaccurate in the initial application for coverage.

Contract (Policy): The agreement in writing detailing the terms of the insurance coverage as agreed upon by the issuer and the policy holder.

Conversion: An option in a policy that allows for the possibility of switching one kind of coverage such as Term life for a different coverage option such as whole life.

Convertible Term Insurance: This allows for the option of switching your term insurance into a permanent form of life insurance.

Coverage Amount / Face Amount: This is the essential payment that will be paid out under the terms of the policy without being altered by special circumstances such as accidental death which may increase the payout under the terms of the agreement.

Date of issue: This is the day a policy becomes active as outlined in the terms.

Death Benefit: This is the basic amount that the beneficiary will receive when the holder dies, no matter how they die.

Deferred Annuity: This is when an annuity payment does not start being made until after a specific number of years have passed.

Dividend: Sometimes there is a possibility of a dividend, but there is not guarantee. This is a payment of part of the premium back to the policy holder based on the insurer’s expense, mortality, and investments.

Evidence of Insurability: The physical proof of the factors such as age, health, and occupation that will decide if a company will insure an individual or not.

Face Amount: The basic amount that is owed upon the death of the policy holder or the maturation of the policy.

Fixed Amount Periodic Payment: A predetermined payment amount that will add up to the total payable amount after the schedule of fixed payments has been completed.

Fixed Annuity: A guaranteed payment upon annutization along with a guaranteed interest rate during the applicable time period.

Flexible Premium Deferred Annuity: This is where annuitization will be deferred a set number of years, and where the option is provided to make extra deposits after the initial payment.

Free-Look Provision: This allows a person a set amount of time in which to evaluate their new policy. If they decide they do not want coverage, they may receive a refund of their premiums if they decide to do so within the set timeframe.

Grace Period: When more money is required to make the monthly payment on the insurance policy, the grace period is the amount of time the policy will still be valid before the payment must be made.

Illustration: This is a projection of many potential numbers, including interest rates, death benefits, payments, and the cash value of a policy. These numbers are based upon the current business of the insurance company, but many companies have ways of artificially inflating these numbers.

Immediate Annuity: This is when annuity payments begin in less than a year from the initial purchase date.

In Force: Refers to the value of insurance policies as issues by the insurance company.

Individual Retirement Annuity (IRA): An IRA is an account that employed people can deposit into for retirement purpose. IRA deposits are treated favorably for tax purposes.

Insurability: Refers to whether a company decides that they will insure a specific person based on their application criteria.

Insured: The insured is the person who the policy is issued to pay out for in the event of their death.

Insured or Insured Life: The insured is the person whose death would cause the policy to pay out to the beneficiary.

Interest Rate (Current): This is the immediate interest rate that is applied to the life insurance policy.

Interest Rate (Loan): If a life insurance loan is taken out, this is the rate of interest that is applied to that loan.

Irrevocable Beneficiary: This indicates that beneficiary cannot be altered to another person unless the current beneficiary agrees to do so.

Issue Age: How old the insured person was when the life insurance policy becomes active. This number will be rounded to either the closest or the previous birthday.

Joint Annuity (Joint Life Annuity): A situation where an annuity is paid to more than one person for as long as those people are alive. If one dies, there are agreements that allow for certain amounts or reduced annuities to be paid to the surviving annuitant.

Lapse: If an insurance premium remains unpaid or if the total cash value of certain kinds of policies is emptied, then the policy will lapse and the insured will no longer be covered by life insurance.

Length of Coverage/Term Length: The period of time that your policy covers.

Level Premium Life Insurance: In this type of payment for insurance, the amount of the premiums will not increase in successive years. Instead, the level payments will continue. This has the effect of raising the cash value of the policy over a period of time, because the initial payments are likely more than the amount of the coverage, and as the years go on the coverage will be more than the premiums.

Life Annuity: Annuity payments will be made to the annuitant under the terms of a life annuity until the person who is deemed the annuitant dies.

Lifetime Income with Period Certain: This is a guarantee of a fixed number of annuity payments. The annuitant will name a beneficiary and if the annuitant dies before the fixed number of payments has been completed then the remainder of those payments will be made to the beneficiary.

Loan: In life insurance terms, this is obtaining a personal loan from the insurance company by using the cash value of your policy as collateral.

Loan (Outstanding): If you take out a loan on your life insurance policy, this is the amount still owed, including interest.

Loan (Policy Loan): Taking out a loan against the value of your life insurance policy.

Maturity Date: This is the agreed upon date of the end of coverage under the terms of your policy.

Medical Information Bureau (MIB): The MIB is a private institution that provides medical information on a confidential basis. The MIB doesn’t not accept or deny applications. They merely provide objective facts to the insurance issuers.

Monthly Anniversary: This is the day of the month exactly every month after the policy date.

Mortality Charge: This is a charge that increases depending on the age of the insured person. This is a part of whole life insurance, and is the cost of the actual coverage if you were to break down where the dollar value of the premium you are paying was being assigned to.

Net Cash Surrender Value: Should you decide to cash in the policy, this would be the amount that you would receive minus any amount that is currently owed on any loans as well as any fees that may apply for surrender.

Paid-up Insurance: If you have paid up insurance you will remain insured without having to make more payments on your policy.

Participating Policy: This means that there is the chance of dividends being paid by the insurer.

Period-Certain Annuity: This is an annuity that will be paid out a predetermined number of times.

Permanent Life Insurance: All types of life insurance that is not term insurance. This is insurance such as whole life that builds cash value and lasts for a life time.

Planned Periodic Payment: This is the agreed upon amount that you will pay upon your billing dates until the policy has matured.

Policy Anniversary: Can be monthly or annually, on the same day your policy was issued.

Policy (Contract): The actual terms of the insurance coverage put down in printed form.

Policy Date: As shown in your actual policy, the date that the policy becomes active.

Policy Owner/Contract Owner (Owner): This is usually the only person who can make changes to the policy, and is the person responsible for paying the premiums on the insurance. They sometimes may be the insured person or the beneficiary in the policy, and as such responsible for maintenance and payments on the insurance.

Policy Owner: This is the person who makes the payments on the insurance, and is authorized to make changes to the policy.

Premium: The money that is given to the insurance company in order to purchase insurance and the payments that must be continued to keep the policy active.

Premium Mode: This is the way you decide to pay your premiums. The options are usually monthly, quarterly, or annually.

Premiums: The amounts you must pay to your insurance company in order to retain active life insurance coverage.

Proposed Insured: A person who has submitted an application for life insurance before that application has been deemed successful.

Rate Class: This is how the life insurance company rates you according to your risks of insurability, based upon factors such as age and health.

Rated (Table Rated): This means the insurance company will assess a percentage addition to your premiums based on a risk to them such as a preexisting health condition.

Rating Classes: These are the various risk categories that life insurance uses to base premiums and approval on. They use factors such as medical history and age to determine the rating class that applies to each applicant.

Renewable Term Insurance: This is insurance that can be renewed without providing proof of insurability at the expiration of the previous term. Rates tend to increase as the insured ages.

Rider: A rider is an additional clause added to a policy to modify its initial terms, either to expand or limit certain coverage or other facets such as the premium payment amount.

Rider – Accelerated death benefit: This rider adds a possibility for a terminally ill person to receive death benefits while alive.

Rider – Accidental death benefit: If this clause is added to the policy it will pay out a larger benefit if the insured dies as the result of an accident.

Rider – Automatic increase rider: If added, this clause would cause for yearly increases regardless of changes to occupation, age, or health conditions.

Rider – Children’s term rider: An option that will provide coverage for all of the children the insured has.

Rider – Guaranteed insurability option: A rider that insures that at the end of a term that the insured may renew insurance even though they may have suffered a change in employment or health that would normally prevent them from gaining insurance.

Rider – Other insured rider: This is the addition of a person other than the policy holder to be covered under the same policy.

Rider – Primary insured rider: A rider that can decrease premium costs for similar coverage by providing level term insurance on the insured. Rider that can get universal life with better coverage at the same premium.

Rider – Waiver of monthly deduction: With this rider if you become disabled the monthly deductions will not be applied.

Rider – Waiver of Specified Premium: If this rider is attached to the policy and the insured suffers a qualifying disability, the premium as detailed in the rider will be waived for the duration of the disability.

Second-To-Die: This is insurance that has been taken out on more than one person, often a married couple. The insurance will not be paid out until both of the insured parties have died.

Single Premium Life Insurance: This is where rather than paying small payments over time to purchase life insurance, one very large payment is made at the policy signing in order to purchase coverage. This method has the advantage that the large payment begins accumulating interest immediately.

Surrender: A policy holder may surrender, or turn in their policy for the cash value of the policy.

Surrender Charge: If a policy holder decides to surrender a policy for the cash value, this is a surcharge that will be applied and deducted from that cash value.

Term Life Insurance: This is the type of life insurance that sees a proportionate increase in premiums and age of the insured and that does not accumulate cash value.

Underwriting Guidelines: The guidelines that are used as a set of predetermined criteria to help assess insurance coverage and premiums.

Universal Life Insurance: A more flexible version of traditional whole life insurance policies. Universal policies do gather cash value as they age; however, they allow the adjustment of certain aspects of the coverage if the insured chooses to do so, such as the amount or frequency of premium payments.

Variable Life Insurance: A policy that builds cash value in separate investment accounts. Cash value is not assured, and depends on the performance of the investment portfolio. Variable insurance has adjustable death benefits and premiums.

Whole Life Insurance: This insurance has a steady premium that lasts the life of the insured, and they will be covered by the policy for the duration of their life.