Life Insurance Terms

Glossary of Life Insurance Terms and Definitions

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Below are important life insurance terms and definitions to help you understand life insurance and how it works. By becoming more familiar with some of these terms you’ll be better able to make an informed decision when deciding to purchase life insurance.


Accelerated Death Benefit

A life insurance policy that provides proceeds to insured individuals over their lifetime, in the event of a terminal illness. The payments made are deducted from any death benefits paid to beneficiaries. Learn more about Accelerated Death Benefit.


Accidental Death Benefit

An extra benefit which generally equals the face amount of the life insurance policy, payable in addition to other benefits in the event of death as the result of an accident.

Actuary

A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics.


Adjustable Life Insurance

A form of life insurance which allows changes on the policy face amount, the amount of premium, period of protection, and the length of the premium payment period.

Agent

An individual who sells and services insurance policies.


Annual Premium

One of four modes of premium you can select to pay your insurance policy – Annual, Semi-Annual, Quarterly or Monthly.

Assets

Insurance company assets refer to “all the available properties of every kind or possession of an insurance company that might be sued to pay its debts.”

Attained Age

An insured’s age at a particular time.


Beneficiary

A person who may become eligible to receive or is receiving benefits under a life insurance policy other than the insured or participant. Learn more about beneficiaries of a life insurance policy.

Broker

An insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.

Broker-Agent

Independent insurance salesperson who represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant’s coverage to maximize protection and minimize cost. This person may be licensed as an agent and a broker.

Capital

Equity of shareholders of a stock insurance company. The company’s capital and surplus are measured by the difference between its assets and its liabilities. This “cushion” protects the interests of the company’s policy owners as well as providing a source of dividends to shareholders and investments in new ventures.

Cash Value

Some life insurance policies, usually permanent types like a whole life, universal life or variable universal life insurance, can accumulate money in a cash value account. In addition to paying for insurance coverage, a portion of your premium goes toward a cash value account that grows tax-deferred over time.


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.

Claim

A formal request for payment related to an event or situation that is covered under an In-Force insurance policy.

Commission

Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and marketing methods.


Contingent Beneficiary

A person(s) named to receive policy benefits if the primary beneficiary is deceased at the time the benefits become payable.


Convertible

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


Coverage

The scope of protection provided under an insurance policy. In life insurance, living and death benefits are listed.


Credit Life Insurance

A group life insurance contract whereby a creditor is protected in the event of death of the insured prior to the indebtedness being paid in full.


Death Benefit

The amount stated in a policy contract as payable upon the death of the person whose life is being insured.


Death Taxes

Taxes levied on the property of a person who died. Federal Death Taxes are called Estate Taxes. State death taxes are also known as inheritance tax.


Decreasing Term

A form of Life Insurance that provides a death benefit which declines throughout the term of the life insurance policy, reaching zero at the end of the term.


Double Indemnity

Payment of twice the basic life insurance benefit in the event of loss resulting from specified causes or under specified circumstance. For example, a Life Insurance contract may provide for twice the basic benefit if death of the insured is due to an accident. Learn more about Double Indemnity.


Entire Contract Clause

A provision in an insurance contract stating that the entire agreement between the insured and the insurer is contained in the contract, including the application if it is attached, declarations, insuring agreements, exclusions, conditions and endorsements.


Evidence of Insurability

The statement of information needed for the underwriting of an insurance policy.


Examination

The medical examination of an applicant for Life Insurance. Learn more about a life insurance medical examination.


Exclusion

A provision in an insurance policy that eliminates coverage for certain reasons.

Face Amount

The amount of death benefit payable under a life insurance policy.


Free Look

A period of time (usually 10, 20 or 30 days) during which a policyholder may examine a newly issued individual life insurance policy, and surrender it in exchange for a full refund of premium if not satisfied for any reason.


Grace Period

A prescribed period, usually 30 or 31 days from the premium due date, during which an insurance contract is in force and the premium may be paid.


Group Life Insurance

Life Insurance provided for members of a group. It is most often issued to a group of employees but may be issued to any group provided it is not formed for the purpose of buying insurance. The cost is lower than for individual policies because administrative expenses per life are decreased, there are certain tax advantages, and measures taken against adverse selection are effective.


Incontestable Clause

A clause in a life insurance policy providing that after a policy has been in effect for a given period of time (two or three years usually), the insurer shall not be able to contest the statements contained in the application. 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.


Individual Life Insurance

A Life Insurance policy that covers only one insured in the contract.

Insurable Interest

The interest an insurance policy beneficiary has in the risk that is insured. The beneficiary of a life insurance policy has an insurable interest in the insured when the beneficiary is likely to benefit if the insured continues to live and is likely to suffer some loss or detriment if the insured dies.


Irrevocable Beneficiary

A beneficiary that cannot be changed without his/her consent.


Joint Insurance

Life Insurance written on two or more persons with benefits usually payable only upon the first death.


Juvenile Insurance

Life Insurance written on a child. Learn more about juvenile life insurance plans.


Key Person (Key Employee) Insurance Policy

A Life Insurance policy on the life of a key employee whose death would cause the employer financial loss, owned by and payable to the employer.


Level Term Insurance

A type of Term Life Insurance policy where the face value remains the same from the effective date of the policy until the expiration date.


Life Insurance

An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured, or under other circumstances specified in the contract, such as total disability.

Material Misrepresentation

A misrepresentation that would effect the insurance company’s evaluation of a proposed insured.


Medical Examination

The medical examination of an applicant for life insurance or a claimant by a physician who acts in the capacity of the insurer’s agent.


Misstatement of Age

(1) Giving the wrong age for oneself on an application for life insurance or for a beneficiary who is to receive benefits on a basis involving his life contingency (life expectancy). (2) A provision in most Life Insurance policies setting forth the action to be taken if a misstatement of age is discovered after the policy is issued.

Mortality Tables

Charts that show the death rates of a particular group of lives at certain ages, derived from statistics that count deaths in a population by age compared to those still alive at that age.


Non Medical (non-Med) Life Insurance Policy

A Life Insurance policy underwritten on the basis of an insured’s statement of his/her health with no medical examination required. Learn more about term life insurance with no exam required.


Ownership

All rights, benefits and privileges under life insurance policies are controlled by their owners. Policy owners may or may not be the insureds. Ownership may be assigned or transferred by written request of the current owner.

Permanent Life Insurance

Life insurance that provides coverage throughout the insured’s lifetime and may also provide a cash value.


Policy

A written contract for insurance between an insurance company and policyholder stating details of coverage.

Policy Anniversary

As a general rule, the date on which coverage under an insurance policy becomes effective.

Policy Rider

An amendment to an insurance policy that becomes part of the insurance contract and either expands or limits the benefits payable under the contract.


Premium

The price of an insurance policy, typically charged annually, semiannually, quarterly or monthly.


Proof of Loss

Documents showing the insurance company that a loss has occurred. For example, a death certificate to evidence death of an insured for a life insurance policy.


Proceeds

The amount payable by an insurance policy, usually in usually in reference to the face amount of a Life Insurance policy, payable at the death of the insured.


Renewable Term

Term Life Insurance that may be renewed for another term without evidence of insurability.


Renewal

The automatic re-establishment of in-force status effected by the payment of another premium.


Return of Premium

A rider on a Life Insurance policy providing that, in the event of death of the insured within a specified period of time, the policy will pay, in addition to the face amount, an amount equal to the sum of all premiums paid to date. This is a form of Increasing Term Insurance and is used as a sales tool.


Revocable Beneficiary

The second person named to receive benefits upon the death of an insured if the first-named beneficiary is not alive or does not collect all the benefits before his or her own death.


Rider

An attachment to an insurance policy that alters the policy’s coverage or terms.

Risk Class

Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking ad non-smoking, male and female.

Section 1035 Exchange

This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.

Section 7702

Part of the Internal Revenue Code that defines the conditions a life insurance policy must satisfy to qualify as a life insurance contract, which has tax advantages.


Standard Risk

A risk that is on par with those on which the rate has been based in the areas of health, physical condition, and morals. An average risk, not subject to rate loadings or restrictions because of poor health.


Suicide Clause

If you commit suicide after being insured for less than two years (in most states) your beneficiaries will receive only a refund of the premiums that were paid.

Surrender Charge

Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.


Term Life Insurance

A type of Life Insurance policy that has no cash value and is designed for a specified period of time such as 5, 10, 15, 20 or 30 years.

Underwriter

The individual trained in evaluating risks and determining rates and coverage for them.

Underwriting

The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.


Universal Life Insurance

A combination flexible premium, adjustable life insurance policy. The premium payer may select the amount of premium he or she can pay and the policy benefits are those which the premium will purchase. Or, the premium payer may change the amount of Insurance and pay the premium accordingly.


Variable Life Insurance

A form of Life Insurance whose face value varies depending upon the value of the dollar or securities or other equity products at the time payment is due.


Variable Universal Life Insurance

A combination of the features of Variable Life Insurance and Universal Life Insurance under the same contract. Benefits are variable based on the value of equity investments, and premiums and benefits are adjustable at the option of the policyholder.


Waiver of Premium

A provision of a Life Insurance policy which continues the coverage without further premium payments if the insured becomes totally disabled.


War Clause

A provision excluding liability of an insurer if a loss is caused by war.


Whole Life Insurance

A form of Life Insurance policy which may be kept in force for a person’s whole life and which pays a benefit upon the insured’s death, whenever that may be. All whole life insurance policies build up cash value within the policy.


Yearly or Annual Renewable Term Insurance

A form of Term Life Insurance that may be renewed annually without evidence of insurability until some stated age.


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