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In this glossary of life insurance terms you will find the information necessary for you to fully comprehend the information contained in this site as well as in other site related to insurance.

A • B • C • D • E • F • G • H • I • J • K • L • M • N • O • P • Q • R • S • T • U • V • W • X • Y • Z

• a •

accelerated benefits rider a provision in many new policies which will allow the policy owner to receive a portion of the death benefit early if the insured person is diagnosed with a terminal illness or permanently confined to a nursing home.

accidental death benefit rider a rider added to a policy that provides an additional benefit if the insured dies from accidental causes.

accidental death insurance insurance providing payment if the insured's death results from an accident.

agent an authorized representative of an insurance company who sells and services insurance contracts.

annually renewable term a form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year, without evidence of insurability. Also called yearly renewable term.

assignment the transfer of the ownership rights of a Life Insurance policy from one person to another.

• b •

backdating a procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the consumer at issue lower than it actually was in order to get lower premium. State laws often limit to six months the time to which policies can be. backdated

beneficiary the person designated to receive the death benefit when the insured dies.

binder a temporary insurance policy that expires at the end of a specific time period or when the permanent policy is written. A binder is given to an applicant for insurance during the time the complete policy paperwork is being completed.

• c •

cash benefits money that is paid to the insured upon settlement of a covered claim. Often found with Hospital Income Programs, "cash benefits" are paid directly to the insured rather than the doctor or the hospital directly.

cash value the equity amount or "savings" accumulation in a whole life policy.

cash value insurance life insurance that combines death benefits with an accumulation feature. The buyer of a cash value policy pays more in the early years than for term insurance, but the money not needed to pay for the cost of the death benefit accumulates at interest. If the policy is surrendered before the insured dies, there may be a cash value paid to the owner. Make sure the agent/broker provides you with the method by which the cash value is determined and that they obtain this information based on the policy’s guaranteed value. As a general rule, it is not a good idea to buy cash value life insurance if you plan to surrender early. more...

certificate a document provided to a person insured under a group insurance policy evidencing that the coverage exists.

claim notification to an insurance company that payment of an amount is due under the terms of the policy.

conditional receipt given to policy owners when they pay a premium at time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt.

contestable clause a provision in an insurance policy setting forth the conditions under which or the period of time during which the insurer may contest or void the policy. After that time has lapsed, normally two years, the policy cannot be contested. Example: Suicide.

contingent beneficiary person or persons named to receive proceeds in case the original beneficiary is not alive. Also referred to as secondary or tertiary beneficiary.

coverage another word for insurance. Insurance companies use the term coverage to mean either the dollar amounts of insurance purchased ($200,000 of liability coverage), or the type of loss covered (coverage for theft).

conversion privilege allows the policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on agent time of original issue).

convertible term a policy that may be changed to another form by contractual provision and without evidence of insurability. Most term policies are convertible into permanent insurance.

cross-purchase plan an agreement that provides that upon a business owner's death, surviving owners will purchase the deceased's interest, often with funds from life insurance.

• d •

death benefit the amount of money paid to the beneficiary when the insured person dies.

decreasing term insurance term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annually.

double indemnity payment of twice the basic benefit in the event of loss resulting from specified causes or under specified circumstances.

• e •

evidence of insurability medical and other information about a person applying for insurance that the life insurance company keeps confidential, but uses to decide whether the policy can be issued and what premiums to charge.

exclusions specified hazards listed in a policy for which benefits will not be paid.

expiry the termination of a term life insurance policy at the end of its period of coverage.

• f •

face amount the amount to be paid to the beneficiary when the insured dies. It will be reduced by any unpaid policy loans and interest on those loans and may be increased by any dividends.

final expenses expenses incurred at the time of a person's death. These include funeral costs, court expenses associated with probating his or her will, current bills or debt, and taxes. Depending on their circumstances, the survivors may also want to pay the outstanding balances of mortgage and loans.

first to die insurance insurance policy whose death benefit is paid to the surviving insured upon the death of one of the insured's. There is no longer a benefit once the benefit is paid, however, the surviving insured usually has the option of purchasing a policy of the same amount without providing evidence of insurability.

fixed benefit a death benefit, the dollar amount of which does not vary.

free look a required period, of 10 or more days after a policy has been delivered to the policy owner, during which the policy can be returned for a refund of all amounts paid.

funeral expenses expenses incurred for a funeral and burial. These can include casket, vault, grave plot, headstone and funeral director.

• g •

grace period a period (usually 31 days) after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout the period.

graded premium policy a type of whole life policy designed for people who want more life coverage than they can currently afford. They pay a lower premium rate that increases gradually over the first three to five years and then remains constant over the life of the policy.

guaranteed term a form of renewable term insurance that remains in force as long as the premiums are paid on time. With guaranteed term insurance, the insurance company cannot terminate the policy during the term.

guaranteed insurability (guaranteed issue) an option that permits the policy holder to buy additional stated amounts of life insurance at certain times in the future without having to provide new evidence of insurability.

• i •

illustration a document used in life insurance sales presentations showing year-by-year numbers indicating how a policy will work. Usually it assumes that amounts being paid today will continue in all future years.

incontestable clause a clause in a policy providing that a policy has been in effect for a given length of time (two or three years), the insurer shall not be able to contest the statements contained in the application. In life policies, if an insured lied as to the condition of his health at the time the policy was taken out, that lie could not be used to contest payment under the policy if death occurred after the time limit stated in the incontestable clause.

in force insurance on which the premiums are being paid or have been fully paid.

insurability all conditions pertaining to individuals that affect their health, susceptibility to injury and life expectancy; an individual's risk profile.

insurable interest requirement of insurance contracts that loss must be sustained by the applicant upon the death of another and it must be sufficient to warrant compensation.

insurance a formal social device for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration, to pay for the loss in the amount specified in the contract.

insurance policy the printed form which serves as the contract between an insurer and an insured.

insured the person on whose life an insurance policy is issued.

insurer party that provides insurance coverage, typically through a contract of insurance.

irrevocable beneficiary a beneficiary that cannot be changed without that beneficiary's consent.

increasing term insurance term life insurance in which the death benefit increases periodically over the policy's term. Usually purchased as a cost of living rider to a whole life policy.

• l •

lapse discontinuation of insurance without cash values when required premiums are not paid. If cash value exists there be non-forfeiture provisions available.

level term Insurance term coverage on which the face value and premiums remain unchanged from the date the policy comes into force to the date the policy expires.

life expectancy the average number of years remaining for a person of a given age to live as shown on the mortality or annuity table used as a reference.

life insurance an agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured.

limited pay policy a type of whole life insurance designed to let the policyholder pay higher premiums over a specific period such as 10 or 20 years and then not pay any premiums for the rest of his or her life.

loan value the amount which can be borrowed by the policy owner from the company using the value of the policy as collateral. Usually the interest rate payable on the loan varies based on an index defined in the policy.

• m •

Medical a document completed by a physician or another approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability) or in relation to a claim.

medical expenses charges for medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, prosthetic devices, and funeral expenses. (The insurance company defines what is reasonable.)

misrepresentation act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.

mode of premium payment the frequency of premium payments during the policy year. Premium payments can usually be made on annual, semiannual, quarterly or monthly modes.

modified premium policy (see graded premium policy)

mortality charge the charge for the element of pure insurance protection in a life insurance policy.

mortality cost the first factor considered in life insurance premium rates. Insurers have an idea of the probability that any person will die at any particular age; this is the information shown on a mortality table.

mortality rate the number of deaths in a group of people, usually expressed as deaths per thousand.

mortality table a statistical table showing the death rate (probability of death) at each age.

• n •

non-forfeiture options provision in the policy which allow policy owner to chooses how the cash value of the policy will be used if the policy is surrendered or lapses due to non-payment of premium.

non-medical insurance a contract of life insurance underwritten on the basis of an insured's statement of his health with no medical examination required.

• o •

occupational hazard a condition in an occupation that increases the peril of accident, sickness, or death. It usually will mean higher premiums.

offer and acceptance the offer may be made by the applicant signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant.

original age the age you were when you bought the policy.

other insured rider a term rider covering a family member other than the insured that is attached to the base policy covering the insured.

ownership all rights, benefits, and privileges under a policy are controlled by the owner, who is usually the insured. Ownership may be transferred or assigned to someone else by written request of the current owner.

• p •

paid-up insurance insurance on which it is guaranteed that no further premium need be paid.

para-med (paramedical) examination the medical examination of an applicant for Life Insurance.

para-med (paramedical) a physician, nurse, or para-med appointed by the medical director of a life insurance company to examine applicants.

participating insurance insurance on which the policy owner is entitled to share in the surplus earnings of the company through dividends which reflect the difference between the premium charged and the actual earnings and costs of providing coverage.

permanent life insurance a term loosely applied to life insurance policy forms other than Group and Term, usually Cash Value Life Insurance, such as Whole Life Insurance.

policy the printed document issued to the policy owner by the company stating the terms of the insurance contract.

policy year a one-year period starting on the day and month the policy was issued. The first policy year starts on the date of issue, and ends on the day before the policy’s first anniversary.

policyholder the person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

preferred risk a risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age.

premium the payment a policy owner is required to make for an insurance policy to remain in force.

premium flexibility the policy holder's right to vary the amount of premium paid each month towards a universal life policy.

primary beneficiary in life insurance, the beneficiary designated by the insured as the first to receive policy benefits.

primary policy the insurance policy that pays first when you have a loss that's covered by more than one policy.

probate costs the legal fees and other costs incurred in the probate process, which is the legal processing of your will. Assets that you leave to other people through your will cannot be distributed until the will is probated.

provisions statements contained in an insurance policy which explain the benefits, conditions and other features of the insurance contract.

• r •

rated policy a policy issued with an additional premium to cover the extra risk involved if an insured has impaired health, a hazardous occupation or hobbies, or is a private pilot.

re-entry option an option in a renewable term life policy under which the policy owner is guaranteed, at the end of the term, to be able to renew his or her coverage without evidence of insurability, at a premium rate specified in the policy.

reinstatement the restoring of a lapsed or surrendered policy to full force and effect. The company requires evidence of insurability, and payment of all amounts necessary, including interest, to put the policy into the condition it would have been in had the lapse or surrender not occurred. The company is not obligated to reinstate a policy.

renewable term/annual renewable term term insurance that may be renewed for another term without evidence of insurability. Level term usually turns into renewable term with increasing premiums after the level premium period.

replacement a new policy written to take the place of one currently in force.

representation statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief but that are not warranted as exact in every detail.

revocable beneficiary the beneficiary in a life insurance policy in which the owner reserves the right to revoke or change the beneficiary. Most policies are written with a revocable beneficiary.

rider an attachment to a policy that modifies its conditions by expanding or restricting benefits or excluding certain conditions from coverage.

risk the chance of injury, damage, or loss.

risk selection the method a home office underwriter uses to choose applicants that the insurance company will accept. The underwriter must determine whether risks are standard, substandard or preferred and set the premium rates accordingly.

• s •

secondary beneficiary an alternate beneficiary designated to receive payment, usually in the event the original beneficiary predeceases the insured.

settlement option the manner in which the insured or beneficiary may choose to have the policy proceeds paid.

single premium policy a whole life policy for people who want to buy a policy for a one-time lump sum, and then be covered for the rest of their lives without paying any additional premiums.

standard risk the classification of an applicant for a life insurance policy who fulfills the physical, occupational, and other requirements on which most of a company’s policies are issued. Someone whose characteristics are more favorable may be classified as a "Preferred Risk". When the characteristics are less favorable, the applicant may be characterized as "Rated", or refused coverage altogether.

substandard risk person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.

suicide clause a policy provision which reduces or eliminates the amount to be paid if the insured dies of suicide within the first two policy years.

surrender to voluntarily terminate or cancel a policy for its cash value or other non-forfeiture options.

• t •

term insurance life insurance for a specified period of time. These policies provide benefits in the event of death, but they generate no "cash value". If you have a limited amount to spend, and only need insurance for a finite period of time, you may be able to get more coverage by buying term insurance than by buying cash value insurance. Keep in mind that the cost of term insurance increases as you get older, which may make it more expensive than cash value insurance in the long run. Today’s term policies usually have two sets of premiums - guaranteed maximum premiums, and "current premiums", which are usually much lower, but which can be changed by the company. The company cannot increase current premium above the guaranteed maximum premiums shown in the policy. more...

term period for which the policy runs. In life insurance, this is to the end of the term period for term insurance.

tertiary beneficiary in life insurance, a beneficiary designated as third in line to receive the proceeds or benefits if the primary and secondary beneficiaries do not survive the insured.

third-party owner a policy owner who is not the prospective insured. The policy owner and the insured may be, and often are the same person. If for example, you apply for and are issued an insurance policy on your life, then you are both the policy owner and the insured and may be known as the policy owner-insured. If, however, your mother applies for and is issued a policy on your life, then she is the policy owner and you are the insured.

• u •

underwriter company receiving premiums and accepting responsibility for fulfilling the policy contract. Also, company employee who decides whether the company should assume a particular risk; or the agent who sells the policy.

underwriting the process of evaluating applicants for insurance and classifying them fairly so the appropriate premium rates may be charged. This may involve a physical examination of the applicant.

uninsurable risk a person who is not acceptable for insurance due to excessive risk.

universal life differs from whole life insurance in that it allows the policy owner to vary, with limitations, the amount and timing of premium payments and the death benefit. Cash values are accumulated by crediting premium payments and interest to a fund from which deductions are made for expenses and cost of insurance. The rates at which the interest is credited are declared by the company or may be specified in the contract. Like term insurance, universal life insurance policies usually have two sets of premiums - guaranteed maximum premiums, and "current premiums", which may be lower, but which can be changed by the company, up to the maximum. They also include a minimum interest guarantee. Because of its flexibility, a universal life policy can also be structured to operate like term insurance. more...

• v •

variable life differs from whole life insurance and universal life insurance in that policy owners direct the distribution of their premium payments among several different accounts or funds rather than of the company’s choosing. Typical account choices are: common stock, bond, mortgage, and money-market accounts. With this type of policy, the death benefit and cash value benefits vary in relation to the value of the investments underlying the policy. If the value of the accounts increases, so will the benefits; if the value of the account decreases, so will the benefits, subject to a minimum guarantee. Variable life insurance is more risky to the policy owner than the other forms of cash value insurance, but there is a possibility of greater returns. more...

variable universal life insurance combines the flexibility of universal life insurance with the investment account features of variable life insurance. more...

• w •

waiver of premium a rider added to policy that will pay the premiums during the total disability of the insured.

whole life insurance (also known as straight life, ordinary life and traditional permanent insurance) has guaranteed premiums and death benefits, and a minimum interest rate which will be credited to the funds accumulated in the policy. On some whole life policies higher interest rates may be credited to those funds depending on the future performance of the company’s investments. more...

• y •

yearly renewable term (YRT) (see annually renewable term)