Life Insurance Glossary

We created a life insurance glossary to help make it easier to understand life insurance terms:

Accelerated Benefit – a provision enabling payment of benefits when a terminal or long-term illness occurs

Accelerated Death Benefit – a special provision that enables a policyholder diagnosed with a terminal illness to obtain cash advances against the death benefit

Accidental Death Benefit – a provision that allows for an additional benefit should the insured’s death be classified as the result of an accident

Act of God – an event that occurs as the result of natural causes

Actuary – a professional who calculates dividends and rates as well as other statistics

Application – a completed document requesting insurance coverage

Approval – indicates legal acceptance of an applicant’s request for life insurance, a policyholder’s request for reinstatement of a policy, loan against the policy, or benefits, the insurer’s associated risk of insuring an individual, or the state’s legal receipt of insurance-related forms

APS –an attending physician statement, the APS is a common method of verifying factual data pertaining to a prospective policyholder’s request for insurance

Assignment – the legal transference of one individual’s policy interests to another party

Attained Age – the age of the insured individual at the current time

Beneficiary – the individual who is named by the owner of the life insurance policy

Binder – a temporary contract providing insurance protection prior to the issuance of the permanent policy

Business Life Insurance – a policy taken out on a business partner or key employee to protect the surviving partners’ financial interest in the company

Child Rider – the provision of insurance coverage added to an existing life insurance policy for a child (or several children) of the insured

Claim – the formal request for payment of the life insurance policy benefits

Collateral Assignment – securement of a loan by listing the creditor as a beneficiary of the life insurance policy

Contingent Beneficiary – the individual who has been named on the life insurance policy to take the place of the primary beneficiary if his or her death occurs prior to the insured

Credit Life Insurance – coverage issued to a creditor to protect against the death of a debtor who is responsible for a large debt

Declined Risk – the individual requesting life insurance is considered to pose too great of a risk for the insured to provide coverage

Disability Waiver of Premium – a provision, sometimes obtained with a higher premium, that enables the life insurance policy to stay in force without the payment of the premium should the insured become disabled

Effective Date – the actual date when a life insurance policy goes into effect

Endowment – benefits of a life insurance policy paid to the policyholder on the stated maturity date or to a beneficiary if the insured dies before that date occurs

Evidence of Insurability – the proof presented that an individual is an insurable risk

Face Amount – the value of the death benefit that is payable on the insurance policy

Financial Strength – determined by an independent company, the financial strength is a calculation of the insurer’s financial security or the ability of the insurer to pay out the benefits regarding the insurance policy

Free Look Provision – the provision that gives a policyholder a predetermined number of days to review the policy once it has been delivered and to cancel it if he chooses for a full refund of the existing premium payment

Grace Period – a limited timeframe during which an unpaid policy premium that is overdue can be paid without any penalty, but this provision is not available through all insurers

Group Life Insurance – acquired under a master policy to provide insurance benefits to a group of individuals, such as the members of a professional association or the employees of a specific company

Guaranteed Renewal – provides the insured with the ability to continue coverage simply by paying the premiums on time, while also providing the insurer with the right to increase premium rates as the insured ages into the next policy grouping

Guaranteed Insurability – a provision that enables an insured individual the right to obtain additional insurance coverage at predetermined intervals without providing any proof of insurability

Health Rating – an assessment of an individual’s health and accompanying rating for it

HIPPA – stands for the Health Insurance Portability and Accountability Act and provides strict guidelines regarding an individual’s right to privacy regarding health-related issues

High Risk Life Insurance – this type of coverage is intended for individuals with high risk factors

Insurance In Force – refers to any unpaid amounts on insured loans

Incontestability Provision – a provision for annuity and insurance coverage that limits the timeframe during which an insurer can ignore the existing contract due to the gross misrepresentation made by the insured in the policy application

Individual Life Insurance – also referred to as personal insurance, this type of policy provides coverage for a single policyholder as opposed to group life insurance

Insurable Interest – represents the insured person’s interest in the value of the policy’s subject, meaning that he has a valid stake in the continued existence of the insured individual

Irrevocable Beneficiary – an individual who has been named as the beneficiary on a life insurance policy and who cannot be removed as the beneficiary by the policyholder unless he first obtains this individual’s permission or consent

Key Man Life Insurance – a policy designed to protect the financial viability of a business should a key (essential) employee die or become disabled

Lapse – due to nonpayment of the premium, the insurance policy is terminated

Level Premium – the cost of the insurance policy remains the same from year to year with the policyholder paying a higher premium than is actually required in the early years and a lower one in the later years

Life And Health Guarantee Association – an organization that protects policyholders, beneficiaries, and specified individuals against unforeseen losses should the insurer suffer financial insolvency

Life Expectancy – based upon the statistics presented in a mortality table, this figure represents the average number of years a group of people can expect to continue living at a particular age

Limited Insurance Policy – provides coverage for pre-selected illnesses and/or accidents

Long Tail Liability – a claim is distanced from the actual cause of death or injury due to its occurrence 25 or more years earlier

Master Policy – an insurance policy issued to an employer or the trustee of a group to establish a group plan that provides life insurance coverage for all members of the group

Material Misrepresentation – an inaccurate portrayal of facts that might affect the way an insurer views the policy details

Mortality Tables – a chart-like presentation of the death rates that an insurer might reasonably expect to occur among a specific group of individuals at different age points

Non-Cancellable Insurance – the policy cannot be cancelled and the premiums cannot be raised as long as the policyholder continues to make timely payments.

Optional Renewable Policy – the insurer has the option to terminate the insurance policy on its anniversary date

Ordinary Life Insurance – issued in thousand-dollar increments and accompanied by annual or distributed (monthly, quarterly, semi-annual) premiums

Paid-Up Insurance – a policy for which all of the necessary premiums have been paid in full

Policy – the issued document that includes the terms of the policyholder’s insurance

Policy Anniversary – the date when the insurance coverage went into effect

Policy Owner – the person who has legal rights and ownership of a life insurance policy, whether or not it is term or whole/universal

Policy Rider – a change to the initial policy that limits or expands the benefits that are payable under the terms of the contract

Policy Term – defines the time period during which the insurance contract provides coverage

Policyholder – the individual who is the legal owner of the life insurance policy, typically the insured individual, but sometimes a relative or a business, as in the case of employee insurance

Pre-existing Condition – any ailment (physical or mental) that existed prior to the purchase of insurance coverage

Preferred Risk – an individual who can obtain lower premiums for insurance coverage due to the fact that he holds a less-than-average risk of death

Premium – the financial compensation or number of dollars paid to obtain the insurance policy

Quote –the estimated premium cost to obtain a life insurance policy based on the facts supplied by the applicant

Ratings – an assessed valuation of a company’s fiscal stability

Rated Policy –features a higher premium due to the higher level of risk connected to the insured’s existing health or dangerous occupation

Renewal – keeping an existing insurance policy in force by paying the premium for a new term

Return of Premium – the cost of the premium is repaid if the insured outlives the term of the insurance policy

Rider – a legal modification to an insurance policy, adding or restricting the payable benefits

Risk – the uncertainty of financial loss based upon the insured individual being covered by the insurance

Risk Classification – a determination of the premium rates based upon different risk characteristics

Second to Die Insurance – a life insurance policy covering two individuals that pays out only when the second individual dies (also known as survivorship insurance)

Short Term Life Insurance – a policy intended to offer coverage during a brief period of time when life insurance is desired, such as in between jobs or when an individual is young

Special Risk Insurance – life insurance coverage for high risk events involving aviation, scuba, and other dangerous activities or occupations

Substandard Rating – an assessment depicting an individual as uninsurable by regular standards, necessitating a specialized policy that restricts death benefits related to specific causes

Term Insurance – a temporary policy that covers the insured for a single year at a time with no cash value attached to the policy

Underwriting – a process designed to identify the degree of risk presented by an individual wishing to obtain insurance coverage

Variable Life Insurance – a policy with a face value that fluctuates based upon the current value of the American dollar or equity products that are supporting the contract at the time that the benefit becomes due

Viator – an individual who is terminally ill and sells his life insurance policy

Waiver of Premium – a specialized provision enabling the insurer to forego premium payments, while keeping the policy in force, if the policyholder suffers an injury that prevents him from earning a wage

Additional Glossary Term Life Insurance

Annually Renewable Term Insurance Policy – an insurance policy that features increasing premiums each year

Convertible Term Insurance Policy – a term life insurance policy that includes a provision allowing the policyholder to convert the policy into whole/universal life insurance

Cost-of-living Rider – a provision that enables the policyholder to increase his existing term insurance coverage to keep up with the increase in the cost of living at an additional fee

Guaranteed Level Term Insurance Policy – an insurance contract offering level premiums over specific time periods, including 5, 10, 15, 20, or 25 year increments

Original Age Conversion – converting a term life insurance policy to whole life coverage using a premium rate that is determined by the policyholder’s age at the time the term policy was obtained

Renewable Term Insurance – term insurance policy featuring the right to renew for an additional time period

Return of Premium Term Life Insurance – the cost of the premium is repaid if the insured outlives the term of the insurance policy, which typically features a higher premium

Additional Glossary Universal/Whole Life Insurance

Acceleration Clause – a provision that states when a loan made against the policy is determined as due and payable

Annuity – periodic payments made by the insurer to the annuitant for a pre-determined time period

Cash Value – the savings portion or the policyholder’s interest in a whole life insurance policy

Modified Life Insurance – a form of whole life insurance that features a lower premium cost in the early years that gradually begins to increase

Non-Forfeiture Option – this occurs when the policyholder discontinues payment on a cash-value policy and he has the option of taking it as reduced paid-up insurance or switching it to term insurance

Non-Forfeiture Value – the monetary worth of a canceled policy that held cash value

Policy Loan – a sum of money that has been borrowed with interest against an insurance policy that is used as collateral

Reduced Paid-Up Insurance – a downgraded policy that features a smaller payout, available through a non-forfeiture option

Universal or Whole Life Insurance – a permanent policy featuring a savings aspect that covers the policyholder throughout the insured individual’s lifetime

Valuation – a calculation of the reserve held in a life insurance policy

Variable Annuitization – the conversion of an annuity that is variable from its accumulation period to its payout phase

Variable Universal Life Insurance – a policy that combines some of the features of variable life insurance with aspects of universal life insurance, featuring adjustable premiums and benefits at the bequest of the policyholder