Life Insurance Glossary

Use this Life Insurance Glossary to reference terms and definitions

The Life Insurance Glossary is sorted alphabetically

A

Accelerated death benefits
This provision allows a person to receive a portion of their life insurance money while they are still alive. If the insured becomes terminally ill or needs severe medical care, payments will be made and deducted from the death benefits to beneficiaries.
Accident indemnity rider
An additional benefit that will increase the policy death benefit amount if your death was caused due to an accident – these riders are optional.
Annuitant
Usually the owner of the policy or spouse who receives income from an annuity contract.
Annuity Death Benefit
The beneficiary will receive the due value of the annuity if the contract owner dies before the payment phase (annuitization).
Arbitration
Where a third party settles disputes between the insured and the insurance company.
Automatic withdrawals
An authorization you make allowing the insurance company to automatically pay premiums from your bank account – this is usually on a monthly basis.

B

Beneficiary
The named person/s or party that you designate to receive benefits from your life insurance policy.
Broker
Brokers who sell life and health insurance must be licensed in each state where they sell policies – they serve as the intermediary between the client and the insurance company.

C

Cash Value

The money accumulated in the policy and due to you if the policy is surrendered or cancelled.

Most permanent and whole life policies have a cash value component.

Conditional Receipt
This receipt is issued to the policy owner after the premium has been paid at the time of application.
Contingent Beneficiary
Contingent beneficiaries can be named to receive the proceeds of a life insurance policy if the primary beneficiary is no longer alive at the time the death benefit is payable.
Convertible term insurance
A term insurance policy which allows you to exchange the policy for a permanent life policy without having to undergo a new medical exam. The permanent life policy premium will be based on the age of the insured at the time of conversion.

D

Death Benefit
The amount to be paid to beneficiaries after the death of the insured – the amount is calculated after adjustments (if any), for example, late premium payment, policy loans etc.
Decreasing term life insurance
Applies to term life insurance where the death benefit decreases in amount over the term of the policy.
Deferred Annuity
An annuity where payments begin at a predetermined point in time, for example, retirement. Premiums contributed are intended to grow tax deferred for future use.

E

Elimination Period
Commonly found in disability insurance policies – this is a waiting period and acts like a deductible; the elimination period is determined in days from the start of the illness or injury.
Exclusion

A provision that eliminates coverage for certain people and risks.

(Life Insurance Glossary by LifeSmart)

F

Face amount
The death benefit amount that is paid if the insured person dies while the policy is in force.
Fraudulent Claim
Giving false information when filling a claim to try and collect benefits that would otherwise not be paid.
Free look period
Usually lasts from 10 to 30 days where the purchaser of an insurance policy can cancel the contract without any penalty. If the purchaser is not satisfied with the policy, a full refund is issued.

G

Guaranteed Death Benefit

The guaranteed death benefit amount under a variable annuity contract.

Group insurance
A single insurance policy (master policy) covering a group of people, for example, employees of the same company.

I

Insured

The named person who is insured by the policy – this could be in your name or someone else.

Insurance score

Some insurance companies use an insurance score to determine underwriting criteria. These scores are based on confidential rankings and credit information. They help determine how well the applicant manages their financial affairs.

(Life Insurance Glossary by LifeSmart)

Irrevocable beneficiary

A beneficiary who cannot be cancelled on a policy without his or her consent.

K

Key person insurance

Used to protect a business interest – to cover an individual who’s death or disability could cause substantial financial loss to a business.

L

Lapse
If the premium is not paid by the end of the grace period, the policy will terminate or lapse.
Level premiums
Premiums that will remain unchanged (level) each year – this will be for a specified duration as determined in the policy.
Life insurance

Life insurance provides financial protection caused by the death of the person insured.

(Life Insurance Glossary by LifeSmart)

Limits
The maximum amount of insurance that can be paid for an insured loss.

M

Mutual insurance company
An insurance company owned by its policy holders. Part of its profits are paid to policyholders as dividends while the rest are retained as reserves.

P

Premium
The price of an insurance policy to receive coverage – premiums are typically paid monthly but can also be paid annually or semi-annually.
Primary Beneficiary
The named person specified in the policy to receive the proceeds first.
Pure life annuity
A fixed or variable annuity that ends payments when the annuitant dies.

R

Rating agencies
These agencies determine and monitor the financial strength of insurance companies.
Redlining
An insurance company cannot deny coverage based on where the applicants live – the determination must be based on risk.
Renewal premiums
These are premiums payable after the initial premium has been paid to keep coverage in force.
(Life Insurance Glossary by LifeSmart)
Reinstatement
If your policy lapses, in certain cases, the policy can be restored by providing acceptable evidence of insurability and be getting unpaid premiums and interest brought up-to-date.
Reinsurance
Insurance companies reduce their own risk by having themselves insured through reinsurance. Reinsurers do not pay policyholder claims.
Rider
An insurance policy provision to the basic policy that provides additional benefits at an additional cost. For example, a Return of Premium rider on a term Life policy will pay all the premiums back if the individual outlives the guaranteed term.

S

Smoker Rating
Your insurance premiums will be higher if you smoke or if you have smoked during the past year.
Standard Risk
A person with a standard risk rating will be considered for coverage without special restrictions.
Suicide Clause
If the insured commits suicide within two years after the issue date of the policy, the insurers’ liability will be limited to a return of premiums paid – most life insurance policies have this clause.

T

Term Certain Annuity
An annuity that pays out over a fixed period.
Term Life Insurance
A life insurance policy that covers the insured person for a specified period of time. The designated beneficiary is paid when the insured dies within the specified policy time period. Coverage ends when the term period ends but can be renewed. Renewal premiums will be increased with age.

U

Underwriting
This is the methodology used by insurance companies to classify and determine their risk of insuring an applicant.
Uninsurable risk

When underwriting has determined that the applicant is uninsurable due to high risk.

(Life Insurance Glossary by LifeSmart)

Universal life insurance
A flexible type of permanent life insurance offering the protection of term life insurance as well as a savings element which is invested to provide a cash value buildup. Subject to conditions the death benefits can be changed during the life of the policy.

V

Variable life insurance
A permanent life insurance policy with an investment component that can consist of stocks, bonds and other investments.
Void
A policy can become void and free of legal effect if certain conditions have been met, for example, when it has been proved that the applicant provided false information.

W

Waiver
Is an act or surrendering a right or claim. For example, a Waiver of Premium rider that waives the policyholder’s obligation to pay any further premiums should he/she become seriously ill or disabled.
Whole life insurance
Is a policy with level premiums. The policy pays a stated amount upon the death of the insured. Premiums are level, fixed, and guaranteed throughout the policy’s lifetime. For example, a final expense insurance policy.