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Life Insurance Glossary

Illustration of a Life Insurance Glossary

A

Accelerated Death Benefit Rider

An optional addition to a life insurance policy that allows the insured to receive a partial payment of their policy’s face amount before their death in the case of terminal illness or injury.

Accidental Death and Dismemberment Insurance

Coverage that provides compensation if the insured’s death is the result of an accident or if the insured survives an accident,  but has become paralyzed, lost a limb, or permanently loses eyesight.

Adjustable Life Insurance

A customizable life insurance policy that allows the policy owner to change the face amount, premium amount, protection period, or length of the premium period.

Annuity

A contracted agreement that provides periodic income at regular intervals, usually life.

Annuity Certain

A policy that provides income for a specified number of years, regardless of life or death.

Attained Age

The age of the insured on a given date.

Attending Physician’s Statement (APS)

Medical information provided by the proposed insured’s physician that is used to determine his or her appropriate underwriting classification.

Automatic Premium Loan

A provision in a life insurance plan that authorizes the insurance company to use the loan value to pay any premiums still due at the end of a grace period.

Aviation Hazard

The increased risk of death or injury resulting from participation in aviation, usually as a pilot.

Avocation

An occupation or activity that the insured partakes in.

B

Beneficiary

The person or persons named in the life insurance policy that will receive the insurance proceeds upon the death of the insured.

Blood Chemistry Panel

A series of blood tests that a life insurance company might require to properly underwrite an applicant for certain life insurance policies.

Bonus Rate Annuity

An extra percentile of interest credited to an annuity within its first year of being active.

Burial Insurance

A life insurance plan that is designed to provide enough coverage to pay for funeral and burial expenses.

Buy-Sell Agreement

An agreement made for the transfer of business ownership to the remaining owners (if any) upon the death or retirement of an owner. This transaction usually is funded through a life insurance policy attached to the lives of each individual owner.

C

Cash Surrender Value

The amount available in cash when a policyholder voluntarily terminates a life insurance policy before it becomes payable upon death or maturity. The end amount is the cash value of the policy minus any surrendering fees, outstanding loans, and interest.

Child(ren) Rider

An optional provision on a life insurance policy that provides a small amount of coverage on the lives of the primary insured’s children.

Contingent Beneficiary

An individual or a legal entity that is designated to receive proceeds from a life insurance policy if the the primary beneficiary is deceased when the benefits become payable.

Credit Life Insurance

A group life insurance contract that protects a creditor in the event of death of the insured prior to their debt being fully paid.

D

Death Benefit

The amount stated in a life insurance policy that is payable upon the death of the insured person listed on the policy.

Decreasing Term

A type of life insurance that has a death benefit that declines throughout the term of the contract, reaching zero at the end of its term.

Dependent Coverage

Life insurance coverage on the head of the family which is extended to his or her dependents such their lawful spouse and unmarried children who aren’t fully employed. The “children” may refer to natural, step, foster, or adopted children of the insured.

Dependent Life Insurance

A benefit that is part of a group life insurance policy that provides death benefits to the eligible dependents of a covered employee.

Dividend

A refund of the part of the life insurance premium that reflects the difference between the amount charged on the premium and the combination of actual mortality, investment experience, and expense.

Dividend Accumulation

An option in a life insurance plan that allows the policyholder to leave any premium dividends with the insurance company to gather compound interest.

Dividend Additions

An option where the owner of the life insurance policy can leave dividends with the insurer to buy a single premium life insurance policies for each dividend at whatever amount it will purchase.

E

Evidence of Insurability

Factors that insurers use to decide whether you are an acceptable risk for life insurance. These include statements or proof of employment, finances, and health among other factors.

Extended Term Life Insurance

A provision within a life insurance policy that allows the insured the option of continuing the existing amount of insurance as term insurance at a length of time according to how much the contract’s cash value can purchase.

F

Face Amount

The amount stated on your policy that insurers will pay in the event of the insured’s death or the policy’s maturity. This doesn’t include additional amounts payable under accidental death or other such special provisions.

Fixed Amount Option

A settlement option for life insurance where the death benefit is paid in a series of fixed amount installments until the proceeds and interest earned is terminated.

Fixed Period Option

A settlement option for life insurance where the death benefit is paid with interest in equal payments within a selected period of time.

Free-Look Provision

The time allotted for the insured to examine a life insurance policy and return it for a full refund if they are not satisfied, usually between 10 to 30 days.

G

Group Life Insurance

A life insurance policy purchased to cover members of a group, most often offered to a group of employees working for a business.

I

Insurable Interest

A lawful and substantial economic interest in having the life of the insured continued. This is required when purchasing a life insurance policy on another person. This can apply to those connected through blood relation/love such as spouses or children of the insured. Entities that could have insurable interest include those who have a financial stake in the insured’s life such as an employer or creditor.

Interest Option

A settlement option where the death benefit is left on deposit at interest with the insurer with earnings paid to the beneficiary annually.

Irrevocable Beneficiary – A beneficiary of an insurance policy that cannot be charged without consent.

J

Juvenile Insurance

Life insurance issued on the life of a child.

K

Key Person Insurance

A life insurance policy that is placed on an important person within a business or company. The policy’s proceeds are used to offset the loss experienced by the company upon the insured key person’s death.

L

Lapse Rate

The rate where life insurance policies are terminated due to failure to pay the premiums.

Life Expectancy

The likelihood of an individual to reach a certain age according to a particular mortality table.

Life Income Option

A settlement option where the death benefit plus interest is paid through a life annuity.

M

Misstatement of Age

The falsification of a life insurance applicant’s birth date.

Mortality

The incidence and frequency of death at each attained age.

N

Nonforfeiture Values

Values within a life insurance policy that the policyholder cannot forfeit, regardless of whether or not premiums continue to be paid.

Non-Participating Policy

A life insurance plan that does not distribute to the policy owners any surplus obtained by the insurance company.

O

Ordinary Life Policy

A life insurance plan which premiums are paid continually as long as the insured person lives.

P

Participating Policy

A life insurance policy which the insurance company agrees to distribute part of its surplus to the policy owners, should the board of directors determine that the surplus is not needed at the end of the year.

Permanent Life Insurance

Life insurance that remains in effect until the policy matures, unless the policy owner fails to pay premiums and the cash value is insufficient to cover the policy’s charges.

Policy Proceeds

A certain amount paid on a life insurance policy upon death or when the policy owner receives payment upon surrender or maturity.

Primary Beneficiary

The first person or entity to receive benefits or proceeds from an insurance policy when due.

R

Return of Cash Value

A provision in a life insurance policy that if the death occurs during a certain time period (often 20 years), the policy will pay an amount equal to the cash value of the policy as of the date of death  in addition to the face amount owed.

Return of Premium

A rider on a life insurance policy that will pay an amount equal to the sum of all premiums paid in addition to the face amount owed in the event of a death of the insured within a specified allotted time period.

Revocable Beneficiary

A beneficiary listed in a life insurance policy in which the policy owner reserves the right to revoke or change the beneficiary.

S

Secondary Beneficiary

See Contingent Beneficiary.

Second-To-Die Life Insurance

A life insurance policy that insures the lives two people, typically a married couple. The death benefit is payable upon the second death.

Settlement Options

The methods available to the policy owner to collect on their policy’s benefits.

Standard Risk

A person who fits the typical physical and occupational standards on which normal life insurance premium rates are based.

Substandard Risk

A person who does not meet the requirements set for a standard risk life insurance policy. An additional premium is charged for substandard risks due to the higher probability that the insured will have a shorter lifespan than those who are a standard risk.

Suicide Clause

A clause in life insurance policies that states that if the insured commits suicide within a specified allotted time (usually two years), the insurance company is not required to pay the death benefit.

Supplementary Contract

An agreement between a life insurance company and a policy owner/beneficiary in which the insurer retains part of the cash sum payable under a policy and makes payments in accordance to the chosen settlement option.

Surrender

The termination of a policy.

U

Universal Life Insurance

A combination of flexible premium and adjustable life insurance plans which allow the the policy owner to modify premium payments in response to his or her changing needs and circumstances.

V

Variable Life Insurance

A life insurance policy that features level premiums that allow the policy owner to allocate the cash value of a policy to a variety of investment accounts.

Variable Universal Life Insurance

A life insurance plan that combines the features of variable life insurance and universal life insurance under the same policy. The policy’s benefits are variable based upon the value of the variable sub-accounts under the policy, while the premiums and benefits are adjustable by the policy owner.

W

Waiver of Premium

A provision within a life insurance policy that provides continued coverage without further premium payments in the event the insured is totally disabled.

Whole Life Insurance

A permanent life insurance plan that provides a level death benefit upon the insured’s death or a cash payment upon the policy’s maturity that is equal to the death benefit. The face amount and coverage remain unchanged throughout the course of the policy.

War Clause

A provision in a life insurance policy that excludes liability of the insurance company if a loss is caused by war.