Life Insurance GlossaryInsurance can be confusing - we’re here to help.
The complete transfer of ownership of the insurance policy completely to another party without any terms and conditions. It shifts all rights, benefits and liabilities of the policy to the new owner.
A life insurance clause that enables the policyholder to receive the benefits of the policy before death. Also referred to as living benefits, this type of benefit is normally used for those suffering from a terminal or high cost illness, that require permanent nursing home assistance or have a medically incapacitating condition.
A policy that pays benefits to the policy beneficiary if the cause of death or dismemberment is deemed an accident. This benefit is usually a limited form of life insurance or a rider to a health or life insurance policy. Dismemberment includes the loss of body parts or functions such as limbs, speech, eyesight, or hearing.
A clause or rider on a life insurance policy that enables the policyholder to receive the benefits of the policy if the insured died of natural causes. It is usually an amount paid in addition to the standard benefit.
Also referred to as Age Last Birthday, this method calculates your life insurance age based on your last birthday. Life insurance companies use age to help determine your policy premium amount.
A professional that analyzes financial risk using statistics, mathematics and financial theories to help insurance companies determine risks of individuals.
A type of life insurance that has features of both a term and whole life insurance plan. It allows policyholders to adjust certain policy features such as period of protection, premiums, face amount, and length of the premium payment period.
In life insurance, adverse selection occurs when a person’s demand for life insurance is positively correlated with that person’s risk of loss. In other words, it is the tendency of those in high risk jobs or lifestyles to purchase life insurance and therefore, insurance companies reduce their exposure to large claims by offering limited coverage or by raising premiums.
See Actual Age
The age range which an insurer will not issue or continue an insurance policy.
A method of calculating insurance age based on the individual’s nearest birth date. If their birth date occurs within the next six months, they are considered the next age for calculating their insurance rates.
A licensed professional that sometimes works for an insurance company and sells insurance policies under that company. Agents can also work independently and are able to sell insurance policies from different companies.
An official document that applies corrections or revisions to an insurance policy. The amendment is authorized by the insurer/insurance company and the policy owner and becomes part of the policy.
A fixed sum of money paid to an individual each year for the remainder of their life. An annuity is primarily used a steady stream of income during retirement.
An insurance product that provides a fixed number of payments to the insured individual or their beneficiary or estate.
The transfer of life insurance benefits or proceeds of the policy to a lender as collateral for a loan.
A report from a doctor, hospital or medical facility about the medical history and medical examination results of an individual that they have treated who is seeking insurance coverage.
In life insurance, if a person wants to make their policy effective date at a time prior to the current date, the insurance company will normally backdate up to six months. However, the policyholder must pay the premium amount over that period. It can also help the policyholder save money on their premium amounts based on how life insurance uses age to determine rates. See Actual Age and Age Nearest Birthday
In life insurance, a person or entity that receives the claim amount and other benefits of a life insurance policy upon the death of the policyholder.
The lump-sum payment that the insurance company provides in exchange for premium payments.
The length of time during which a life insurance company will pay the policyholder the benefit as defined in the insurance policy.
While an agent generally sells insurance or represents insurance sellers, an insurance broker represents insurance buyers. They are independent and do not have contracts with specific insurance companies.
A certain type of life insurance that is designed to help pay for funeral services and expenses after a death.
An insurance policy on the life of a sole business proprietor where benefits are paid by the insurance company upon the business owner’s death.
An insurance agreement among co-owners or shareholders that goes into effect if a co-owner dies or leaves the business. In a buy-sell agreement, business partners buy life insurance policies on each other so that when a co-owner dies, the other co-owners are paid a lump-sum benefit that is passed on to the deceased’s family members.
The amount of money the policyholder will receive if they attempt to access the cash value of the policy. There is often a penalty for early withdrawal from a policy.
The amount of money that builds in the policyholder’s cash value-generating annuity or life insurance policy. Also known as account value.
A life insurance policy provision that allows the insured to change the beneficiary of the policy as often as they wish. This excludes policies where the beneficiary is irrevocable.
Also known as a Children’s Term Rider, this type of life insurance rider pays a benefit in the event of a death of the policyholder’s child or children. A child rider is often used to help pay for funeral costs.
In life insurance, collateral assignment is a conditional contract that appoints a lender as the beneficiary of a death benefit to use as collateral for a loan.
The right for a life insurance beneficiary to exchange a series of payments for a lump sum payment.
A receipt that is issued as soon as the first premium is paid by the applicant. The receipt puts the policy in force and begins coverage on the date the applicant receives the receipt.
A one to two year period after a life insurance policy begins when the insurer/life insurance company is allowed to question, investigate and deny claims for any misrepresentation.
The individual who will receive the proceeds of a life insurance policy if the primary beneficiary is unable to.
An incentive credit against premiums in the first year after converting from a term life policy to a permanent life policy (see Conversion Right). The credit amount is determined by the premiums of the converted term coverage as well as the type of whole life policy being taken out. The credit reduces the premium payments for the first year.
In life insurance, the ability to change a term life insurance policy to a permanent insurance policy within a given timeframe, wherein the policyholder does not need to give proof of insurability.
The amount of money paid out to the beneficiary of a life insurance policy upon the death of the policyholder.
A type of renewable term life insurance that provides a death benefit that gradually decreases over the span of the policy. The amount decreases at a predetermined rate, such as monthly or annually.
A life insurance policy rider/provision that states that the insurance company will not require the policyholder to pay the premium in the event of serious injury or illness.
Also known as a return of excess premium, dividends are paid out to whole life policies when the insurer earns excess profits after claims and operating costs are covered.
A provision of a life insurance policy where the insurer agrees to pay double the face amount under certain conditions. Conditions include when death occurs as a result of an accident.
The actual date that the life insurance policy is put in force, different from the issue date. The policy is effective when it is delivered and the initial premium is paid.
The transfer of money from your credit card, checking or savings account across or within a financial institution via a computerized network. In insurance, this transfer of funds goes toward your monthly bill and insurance companies prefer this since they know when to expect payment.
A document amendment or addition to an existing life insurance policy in order to make a change to the policy. They are also referred to as riders and can be used to add, remove, exclude or alter insurance coverage.
The preparation of tasks that will manage an individual’s assets in the event of their incapacitation or death. It is a plan made in advance that names who the individual would want to receive their things after they die.
Documentation of personal health information that verifies that a beneficiary and their dependents are in good health in order to obtain life insurance coverage. Also known as proof of good health.
An employee if a life insurance company that is responsible for approving or rejecting claims or arranging settlements.
A predetermined situation in which the insurer/insurance company will not pay out the benefits. For example, act of war exclusions state that if the insured person dies as an act of war, the insurance company does not need to pay death benefits to their beneficiaries.
The date at the end of a term life insurance policy. When you reach the expiration date of a term policy, often times you can either let the coverage end, renew current coverage, or buy a new policy.
An extra premium charge that is applied to a life insurance policy in the event of adverse risk factors. There are two types of Flat Extra premiums: Temporary Flat Extra and Permanent Flat Extra. The Temporary Flat Extra is applied when there is a risk factor such as a cancer diagnosis and the amount is charged for a specified number of years and then removed. A Permanent Flat Extra is applied when there is an occupational or avocational risk.
The amount of the death benefit payable as defined in the life insurance policy. Also known as the amount of insurance, coverage amount or sum insured.
A type of life insurance policy that can be used to cover end-of-life expenses such as burial, graveside materials, funeral expenses, etc. This type of coverage usually does not have a fixed term.
An assessment of a policyholder’s current financial goals and status to help determine how much insurance coverage they might need.
An option where death benefits are paid out in a series of fixed-amount payments until the proceeds and interest earned run out.
An option where death benefits are paid out for a set period of time.
A policy that has a cash value component that grows with the insurance company’s financial performance but with a guaranteed minimum interest rate. The cash value grows on a tax-deferred basis.
A specified amount of time that a life insurance policyholder has to look over the policy and have the option to cancel the policy without any penalty. The free look period varies by state and insurance company but typically can be 10 days or longer.
A defined period of time, typically 30 or 31 days, that a life insurance company allows if you are unable to pay on time. Coverage will continue as long as the amount owed is paid within the grace period.
Life insurance coverage under a single policy that covers an entire group of people. It is often offered by a large organization or employer to its employees.
A life insurance rider that allows the owner of a current policy to buy additional life insurance with no underwriting process.
A life insurance policy that the insurance company will offer to any applicant, regardless of any past or present health concerns. Even though benefits are guaranteed, this type of policy typically offers low death benefit options and has higher premiums.
A feature on a life insurance policy which requires the insurance company to continue and renew coverage as long as premiums are paid on the policy.
Activities that are typically not covered by life insurance since they carry an increased potential for injury or death. Examples of hazardous activities include: SCUBA diving, aviation, bungee jumping, race car driving, etc.
An individual has incidents of ownership of a life insurance policy if they have the right to change beneficiaries on a policy, borrow from the cash value or change/modify the policy.
A clause/provision in a life insurance policy that prevents the insurance company from voiding coverage due to misstatement by the policyholder after a specified period of time has passed. This period is typically two or three years.
A statement that summarizes information about a life insurance applicant that includes their financial standing, morals, physical condition, habits and other lifestyle information.
A person that has died without having made a will.
A beneficiary on a life insurance policy that must agree to any changes in rights to compensation from the policy. For example, if a spouse is an irrevocable beneficiary, they have the right to death benefit payouts even after a divorce. They must agree to changes in the policy before or after the death of the insured.
The date on which the insurance company approves and accepts the insurance application. This is different from the effective date and the policy does not go into effect until the first payment is made.
In joint first-to-die, it is a life insurance policy that provides coverage for two people, such as a married couple, and makes payment to the survivor as soon as the first person dies. In a last-to-die insurance policy, payment is only made after both people on the policy have passed away.
A permanent life insurance policy that insures the life of a child.
A type of life insurance policy that provides a death benefit to a business if the business owner or another important employee passes away.
A cessation of a life insurance policy that occurs when premium payments are not made and the cash surrender value has been depleted.
The last day that a life insurance policy can be converted from term life insurance to whole life insurance. Attempts to convert the policy after this date can result in losing money paid on premiums.
A type of term insurance where as long as the premium is paid each month, the premium rate is locked in for the term length of the policy.
The age to which a person is expected to life. Life expectancy is used by life insurance companies to determine insurance policy premiums.
The option for a life insurance beneficiary to receive the death benefit in set payments over the remainder of their life. The amount of each payment is determined by the life expectancy at the time the option is chosen after the policyholder’s death.
A contract between an insurance company and an individual in which the insurance company pays out a sum of money upon the death of the insured person or after a set period in exchange for regular premium payments by the individual.
An irrevocable and non-amendable trust that is set up with a life insurance policy as the asset. The trust, not the insured person, owns the policy and it is managed by the trustee on behalf of the beneficiaries in the policy when the insured person dies.
An advance cash payment of a portion of a life insurance policy before the insured individual dies.
A written legal document that shows which type of treatments you want or don't want in case you are unable to speak for yourself, like whether you want life support or not. Typically, this document is only in effect if you are not conscious. It is sometimes called a "medical directive" or "advance directive".
An amount of money that is made at a particular time in one large amount, as opposed to a number of smaller payments or installments.
The act of intentional hiding or fabrication of a fact where the result of doing so would have affected an insurance company’s decision to provide coverage to an applicant.
In life insurance, a medical exam is performed by a qualified medical professional such as a nurse. The exam allows the insurance company to review the applicants medical history and verify the basic information that was provided on the application.
A computer database that stores medical and some non-medical information and their underwriting services are often used to assess an individual’s risk when applying for life insurance.
The frequency of premium payments on an insurance policy. Premium modes include monthly, quarterly, semi-annually, and annually.
In insurance, moral hazard occurs when an insured policyholder increases their exposure to certain risks understanding that someone else would bear the cost of said risk.
A measure of the number of deaths within a specific population over a certain period of time.
Shows the estimated rates of survival for persons based on age, medical conditions, history, and more. Actuarial tables are used to determine life insurance rates and coverage.
Also called an actuarial table.
A type of life insurance plan wherein if the policyholder dies, then a capital sum will be paid to cover the cost of a remaining mortgage.
A type of insurance company that is owned by its policyholders. In a mutual insurance company, any profits that are earned are either kept within the company or are distributed to its policyholders. These profits are paid out in the form of dividends or reduce premiums.
A clause in a life insurance policy that allows the insured to receive full or partial benefits or partial refund of premiums if the policy has lapsed due to non-payment.
A type of life insurance policy wherein the insurance company does not distribute profits to any of the policyholders in the form of dividends.
The potential risk of injury or death to an individual due to a particular occupation, industry or work environment.
A policy which does not have an insurance agent that holds a valid life insurance license and cannot service the existing life insurance policy. Examples of how a policy can become orphaned include the insurance agent leaving the insurance business, the agent ends business with the insurance company or the policyholder terminates services with the agent.
A life insurance policy where all of the premium payments are complete but the policy stays in force until the insured’s death or termination of the policy.
An interview with a life insurance applicant to collect medical history information.
A type of life insurance policy wherein the insurance company distributes its surplus earnings to its policyholders in the form of dividends.
A term that describes life insurance policies that do not expire and provide coverage for life. The two types of permanent life insurance are whole and universal life insurance policies.
A document that outlines the contract of insurance coverage between the insurance provider and the policyholder.
A loan that is issued by an insurance company and it uses the cash value of the individual’s life insurance policy as collateral.
The individual who has ownership rights to an insurance policy. The policy owner is typically known as the policyholder and can be the insured person on the policy, however the insured can be someone else.
A recurring, periodic payment to any life insurance plan to continue coverage.
The individual that will receive the benefits/proceeds of a life insurance policy when the insured person dies. The insured person assigns a primary beneficiary within the policy.
A rated life insurance policy is also known as a substandard policy. See Rating Class for more information.
In life insurance, the insurance company use classifications to help determine an individual's policy rates. The rating class is determined by various health and lifestyle factors. Rating classes include Preferred, Preferred Plus, Premium, Standard, Standard Plus, Substandard, etc. The higher rating, the cheaper the policy premiums will be.
The act of a life insurance agent that gives up their commission on the sale of a life insurance policy and applies it toward the policy. Rebating is illegal in most states in the U.S.