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Life Insurance Glossary

You may attach an accelerated death benefit to your life insurance policy. This feature enables you to receive cash advances against the death benefit if you are diagnosed with a terminal illness.
If you add an accelerated death benefit rider to your policy, you can receive cash advances while you’re living should you be diagnosed with a terminal illness. These cash advances are a set percentage of the death benefit.
With accidental death benefit insurance, the death benefit is only paid if your death is the result of a covered accident, rather than illness or other causes.
If you attach an accidental death benefit rider to your policy, your beneficiaries receive an additional death benefit if the cause of your death is the result of a covered accident, rather than illness or other causes.
With an all cause death benefit, your policy will pay out for any cause of death, except those specifically excluded in the policy.
An amendment corrects or changes an insurance policy. For example, you might use an amendment to expand or limit the death benefit payout. An amendment becomes part of the contract between an insurer and the policy owner once it’s authorized.
The total amount of premium you pay each year is called the annual or annualized premium. Insurance companies offer several premium payment options, including monthly, quarterly, semi-annually or annually. Many insurance companies will give you a discount for paying your policy annually.
A term life insurance policy that renews every year, instead of a multi-year term, is called an annual renewable term. While you’re still guaranteed future protection, ART premiums are based on a one-year contract and are likely to change as the policyholder ages.
The applicant is the individual who completes an application for a life insurance policy. The applicant is usually the person who will be insured by the policy.
When you request life insurance coverage from a company, you complete and submit forms that make up your application. The application typically asks for information about your health and physical condition, as well as your occupation and hobbies. A completed application helps an insurance company decide whether to issue a policy and determine your rates.
A summary of your medical history written by your doctor is called an attending physician statement (APS). An underwriter might recommend an APS because of something disclosed in your application or revealed in the results of your medical exam.
When you purchase life insurance, you select your beneficiary. This is the person or entity that life insurance proceeds (the death benefit) are paid to when you die. While beneficiaries are often family members, they can also be a friend, business partner, trust, or estate.

see Final Expense Insurance

If your permanent life insurance policy features a cash value savings component, you may be able use the cash value in a few ways, such as a source of loan or to pay your life insurance policy premiums. The cash value of an insurance contract, also called the cash surrender value or surrender value, is the cash amount offered to the policy owner by the issuing insurance company if you cancel or surrender (meaning voluntarily terminate) your permanent life insurance policy. If you’ve borrowed against the policy, any outstanding loan amount will be subtracted from the cash value.
A child protection rider is additional coverage for your child, ensuring a payment in case of untimely death. It is typically term life insurance coverage that lasts until your child is between ages 22 and 30, depending on the policy, at which point it can be converted to a permanent life insurance policy. Child protection riders can be added to your policy for a very small premium.
In a collateral assignment, you appoint a lender as the primary recipient of the portion of your death benefit necessary to satisfy your loan. Once you repay the debt, you may need to take additional steps to ensure the conditional assignment ends. If you are unable to pay the debt, in some cases your lender may cash in the policy to recover their monies. However, this may not be an option for all collateral assignments.
If you send in your first premium payment with your application, you may be sent a conditional receipt to start your coverage. With a conditional receipt, so long as the policy is approved as applied for, coverage begins at the time of application. A conditional receipt is sometimes called a conditional binding receipt.
The contestability period is typically a window of time during which an insurance company looks back at the application and issuing processes to investigate whether fraud or misrepresentation has occurred.
If the primary beneficiary of your policy dies before you, and a new primary beneficiary is not named, the death benefit would be paid to a named contingent beneficiary according to the policy terms.
The dollar amount your beneficiary receives upon your death is the death benefit.
The date your life insurance policy is considered to be in force is called your effective date. This means your policy is active and will help protect your beneficiaries if you die between the effective date and policy expiration.
Some employers offer free life insurance as an employee benefit. This is typically group life insurance in which the employee is automatically enrolled or signs up. The employer usually pays all, or most, of your premiums. Since most people do not stay with the same employer for their entire career, there are limits to this coverage. For instance, you might not be able to convert your group policy to an individual policy when you leave. Or, if you can, the premium cost could significantly increase.
Your evidence of insurability is the proof, usually through an application process, that provides information of your health. That information shows you are eligible for certain types of coverage.
The causes of death or other circumstances that can exclude your death benefit from being distributed to your beneficiaries are called exclusions. Suicide is a common exclusion, and others can include acts of war, and some activities considered dangerous like scuba diving or race car driving. Your policy will list any exclusions.
The amount of insurance coverage listed on your policy.

see Face Amount

Your premiums are calculated on an annual basis, but you can choose to pay annually, semi-annually, quarterly or monthly. Keep in mind that paying annually is the most affordable option.

Sometimes called burial insurance, final expense insurance refers to a type of life insurance policy designed to cover the cost of funeral or cremation expenses for the policyholder. Generally, the death benefits for burial insurance range from $5,000 to $35,000. Your beneficiary may also choose to use the proceeds to pay for other final expenses such as medical bills, outstanding debts, or legal bills you may owe.

If health concerns may affect your ability to qualify for permanent life insurance, you can consider a graded death benefit. Increasing percentages of the total death benefit are paid over a set time. So, for example, the first year the payout is limited to 25% of the total value, 50% the second year, 75% the third year, and 100% the fourth year and thereafter.
Group life insurance is a type of life insurance where a single contract covers an entire group of people. The policy owner is typically an employer or membership organization, and term life insurance is the most common type of group insurance. See employer-provided group life insurance.

see Guaranteed Life Insurance

A guaranteed life insurance policy typically offers smaller amounts of coverage at relatively higher costs. There are no health questions, and no medical exam is required. You cannot be turned down for coverage based on your health.

A life insurance policy that has a guaranteed renewable provision renews on its anniversary, continuing your coverage as long as premiums are paid. This means you can remain insured each year up to a certain age without needing to provide new evidence of insurability, such as a medical exam. As a trade-off for the guaranteed continued coverage, premiums on a guaranteed renewable policy may increase annually.

With an individual life insurance policy, only one individual is insured. The policyholder is also the only person who may make changes to a policy.
Adding an inflation protection rider to your life insurance policy increases the value of your death benefit by a set percentage at set times to keep up with inflation. While this rider may increase your premium, it can help you feel confident your beneficiaries can better navigate increasing costs of living in the future.
The insured is the person whose life is being insured with life insurance. The insured often, but not always, owns the policy.
A key person life insurance policy provides a benefit to an employer if an owner or other specified significant employee dies. A business may opt to secure key person insurance if that individual’s death could lead to the end of the business or threaten the financial stability of the company. A key person policy is sometimes used to help a business partners buy out the deceased partner’s share in the company. It may also help fund a replacement employee.
A lapsed policy is when a policy becomes inactive, most often due to non-payment of the required premium amount.
A term life insurance policy with a level premium means your premium payment remains the same during the initial term period.
A licensed agent is authorized to sell life insurance policies, earning a commission for each policy sold. A selling agent must be licensed in at least one state and should have an active contract to represent one or more insurance companies.
The frequency of payments for your policy’s premium may be annual, semi-annual, quarterly or monthly. This schedule is called your mode of premium.

see Simplified Issue Life Insurance, Guaranteed Issue and Accidental Death Benefit

When you die, your beneficiary will receive the death benefit of your active life insurance coverage as a payout. With term life insurance, the death benefit is typically the face amount listed on your policy, plus an amount of interest. With products that earn cash value or allow policy loans, the death benefit may be adjusted.
To keep a policy in force, a payor pays the premium. A payor is often also the policy owner as well as the individual who is insured by the policy.
A permanent life insurance policy provides lifelong coverage for as long as you pay your premiums, even if you live to age 100 or beyond. Unlike term life insurance, permanent life insurance can also build a cash value.
A policy is your contract with a life insurance company. If you die while your policy is active, your policy will pay out a death benefit to your beneficiaries, subject to your policy terms.
If you own a life insurance policy, you are referred to as the policyholder. The policyholder is often the same as the insured.

see Policyholder

The payments you make on a life insurance contract are your premiums. Premiums can be paid monthly, quarterly, semi-annually, or annually.
In a life insurance application and during the underwriting process, the individual whose life would be covered by a policy is the proposed insured. Once the policy is in force, they are called the insured.
Rating agencies are independent bodies that assess a life insurance company’s financial strength and ability to pay claims. These objective ratings analyze customer complaints, available cash flow, and acceptable risk. The ratings are like grades, so an A is better than a B. There are four agencies: A.M. Best, Fitch, Moody’s, and Standard & Poor’s. Each agency applies its own standards and grading scales. However, they are consistent in that the higher the rating, the better the agency has assessed the chances your insurer will be able to pay your benefit, regardless of when your family needs it.
Reduced paid up insurance helps keep your insurance protection in place, while allowing you to stop premium payments. Since you are not making premium payments, the face amount of your policy coverage is reduced. The new face value can be based on several factors including the number of premiums already paid and your cash value at the time you stopped paying those premiums.
If your policy lapses, you may be able to put your life insurance coverage into effect again. Reinstatement is the process of restoring your original coverage.
You may decide you want to replace a current life insurance policy with a new one, perhaps to increase or decrease coverage, reduce your premium, or to better match a policy with your needs as life changes. The new policy is called your replacement policy.
With a return of premium rider, you can recover some or all of your insurance premiums if you do not die during your coverage term.
You can amend or change the coverage or terms of a standard insurance policy by adding a provision called a rider.
To determine your total premium, life insurance companies consider several factors. These include your age and sex, along with the amount and length of coverage. An additional factor is your risk classification, or risk class, which is based on the insurer’s underwriting guidelines. Your personal medical history, height/weight profile, medical exam, family history, motor vehicle record, participation in hazardous activities and smoking status are all considered. Risk classifications names are fairly consistent throughout the industry and range from Preferred Plus or Preferred Elite to Substandard, but each insurance company has their own method of determining who fits each risk classification.
Typically best suited to older adults or those with health problems, a simplified issue life insurance policy typically does not require a medical exam. However, the insurance company will ask more detailed medical questions and may view your medical records. You may be rejected for coverage if you have certain medical issues. You may also see this called no medical exam life insurance.
Under the suicide clause, beneficiaries receive only a refund of premiums, not the full coverage amount, if a policyholder commits suicide within a stated period of the policy issue date- typically two years. If an individual replaces a policy with a new one, the time period starts over.
When you surrender a life insurance policy, you tell the company that you want to cancel. If a policy has a cash surrender value, you can receive that value in cash minus any penalties. Once you surrender a policy, the life insurance coverage ends.
The surrender value is the cash amount available if you decide to cash in your permanent life insurance policy. Usually, the surrender value reflects the cash value of the policy at the time you cash. This amount is reduced by any loans you may have taken out against the cash value, any interest fees, and any administrative fees included in your policy contract.
A term life insurance policy provides coverage that is designed for a specified period of time, such 10, 15, 20, 25, or 30 years. Unlike permanent insurance, term life insurance usually has no cash value.
A trust establishes legal protection over the assets and property of one party (called a trustor) by giving a second party (a trustee) the responsibility to make sure those assets are protected and distributed for the benefit of a third party (called the beneficiary). Some people include their life insurance as part of their trusts in order to help minor children manage the death benefit responsibly, since that money would be under the control of the appointed trustee.

Life insurance companies assess the risk of insuring you and set a cost (the premium) for your coverage in a process called underwriting.

One type of permanent life insurance is called universal life insurance. As with most permanent life policies, it remains in force so long as the amount of premium paid continues to cover the cost of insurance and expenses, and it can build cash value. With a universal life policy, you may be able to increase or decrease the benefit and have some flexibility with premium payments.
A will is a legal document sharing your wishes about how you want your property and estate handled and distributed after you die. It can also indicate who you want appointed guardians of your minor children. Life insurance is generally considered separate from your estate. In many circumstances, any life insurance beneficiaries will be paid the death benefit of your policy, regardless of how your will is written or structured.
Whole life insurance is the most common type of permanent life insurance. It provides lifelong coverage as long as you pay your premiums. It can also build cash value. You can even borrow against this amount or surrender the policy for its cash value.

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