Life Insurance terms
In the life insurance world, there are a lot of big words and complicated terms. We’ve compiled this life insurance glossary with some of the most common terms you might come across on a life insurance website, reading through paperwork or speaking with an agent.
Our goal, as always, is to make the life insurance customer experience as simple as possible.
Accelerated Death Benefit Rider
An optional add-on life insurance benefit that allows the insured to receive partial payment of the policy’s face amount before dying in the case of terminal illness or injury. Also called a living benefit.
Accidental Death and Dismemberment Insurance (AD&D)
A type of insurance that provides payment if the insured’s death is the result of an accident, if he/she becomes paralyzed, loses limbs, or permanently loses eyesight. The types of injuries covered by dismemberment vary by insurer and will be enumerated in the AD&D policy
Accidental Death Benefit Rider
An optional life insurance add-on that pays extra benefits above the face amount if the cause of death is a covered accident.
Annually Renewable Term
A type of term insurance that provides one year of coverage and automatically renews each year. Premiums increase every year and the annual increase gets larger as the insured gets older.
The person, people or organization that receives a life insurance death benefit.
Temporary coverage to protect an insurance applicant during the underwriting process.
Cash value (or cash surrender value)
Most permanent life insurance policies have a built-in cash accumulation function. The policy owner can borrow against it or receive payment if they cancel the policy.
A policy owner can submit a payment along with their application. This provides “conditional” coverage during the underwriting process. If the applicant dies during the underwriting process, the insurance company will pay a death benefit if he/she would have been approved for the policy.
The person, people, or organization that will receive the life insurance death benefit if the primary beneficiary dies before the insured.
Conversion Privilege (or Right)
The ability to convert a term life insurance policy into a permanent policy, usually without a medical exam or proof of insurability.
The payment a policy’s beneficiaries receive when the insured dies. Also known as the face amount or proceeds.
Decreasing Term Insurance
A type of term life insurance that has a death benefit that decreases over time at a predetermined rate. The premium typically does not change. Decreasing term life insurance is sometimes called “mortgage insurance” because it is designed to cover liabilities that decrease over a specified period of time.
Disability Income Insurance
A type of insurance benefit that provides income replacement during periods when the insured is disabled and not able to work.
The amount a policy’s beneficiaries receive when the insured dies. Also called the death benefit.
Final Expense Insurance
A type of permanent life insurance designed to cover the expenses related to the death of the insured, such as funeral costs, medical expenses or legal fees. The face amount is generally lower than other types of insurance. Some Final Expense policies are underwritten on a guaranteed or simplified issue basis.
Graded Death Benefit
All Guaranteed Issue policies have death benefits that are phased in over time, typically over two years. That means that during the first two years of your policy being in force, if you die of health-related issues, your beneficiary will only get back your premiums, plus a small amount of interest. For that reason, we typically recommend this type of policy only to people who can’t qualify for traditional life insurance, due to poor health or questionable lifestyle habits.
Guaranteed Issue Life Insurance
A type of life insurance that is offered without regard to health conditions. The applicant does not have to undergo a medical examination or even answer any medical questions. Guaranteed issue life insurance products are generally more expensive than fully underwritten products.
A term used to describe a life insurance policy that is active and in good standing.
Increasing Term Insurance
A type of term life insurance in which the death benefit increases at a predetermined rate.
The person whose life is covered by a life insurance policy. The insured and the owner are not always the same person.
Level Death Benefit
With Level Death Benefits the insured is eligible for the full death benefit or face value the same day the policy goes into force. Traditional life insurance policies and many Simplified Issue polices have this type of benefit.
Level Term Insurance
Term life insurance with premiums that do not change during a specified number of years, called the level term period. The most common term lengths are 10, 15, 20, and 30 years.
Long Term Care Insurance
A type of health insurance designed to cover costs of long-term care in-home or at adult daycare, assisted living, and nursing home facilities.
Other Insured Rider
An optional life insurance add-on that provides coverage for a person other than the insured. Also called a second insured rider.
Permanent Life Insurance
A life insurance policy that covers the insured until death rather than a specific number of years.
The contract between a life insurance policy owner and an insurance company. The company promises to pay a death benefit to a beneficiary when the insured dies, as long as the insured meets the conditions of the contract.
The person who owns a life insurance policy. The policy owner and the insured do not have to be the same person.
A person who is deemed more likely to have above-average longevity (based on health, lifestyle, and other factors). Insured individuals in this rate class pay lower premiums than insureds in a standard or substandard rate class.
The payment for an insurance policy. Payments can be made monthly, quarterly, semiannually or annually.
The person, people or organization that will receive death benefits when the insured dies. If the primary beneficiary dies before the insured, a contingent or secondary beneficiary will receive the proceeds.
The death benefit of a policy. Also known as the face amount.
Return of premium (ROP)
A type of Term Life insurance that returns the equivalent all premiums back to the policy owner at the end of the term if the insured is still living. The policy may also pay a percentage of the premiums if the policy is cancelled before the term ends.
An optional benefit added on to a life insurance policy to expand the coverage of the policy.
The person, people or organization that will receive life insurance death benefits if the primary beneficiary dies before the insured. Also called a contingent beneficiary.
Simplified Issue Life Insurance
A type of life insurance that only requires the applicant to answer medical questions. No medical examination is needed. It is generally more expensive than fully underwritten life insurance.
Insurance companies charge higher premiums to tobacco users.
A person who is deemed to have average longevity (based on health, lifestyle, and other factors).
A person who is deemed to have below-average longevity (based on health, occupation, risky behavior, and other factors). People in this rate class pay higher premiums.
If the insured commits suicide within a specified period after beginning the policy, usually two years, the insurance company is not required to pay the death benefit. The company may return any premiums paid.
Term Life Insurance
A type of life insurance that proves coverage for a specific number of years, usually 10, 15, 20 or 30 years. If the insured lives beyond the term, premiums generally increase each year.
The process of determining whether a life insurance company will insure an applicant and at what rate class. The insurance company uses a person’s health, age, and other factors to decide whether or not to accept customers and to determine how much the customer will have to pay in premiums.
The company reviews the application, the results of the medical exam, lab results, medical tests and records, and other relevant information to make its decision.
A person who is deemed to have mortality risk higher than an insurance company can accept.
Universal Life Insurance
A type of Permanent Life insurance that gives the policy owner flexibility with regard to the face amount and premium amounts, which can be modified to respond to changing needs and circumstances. Many Universal Life insurance policies accumulate cash value.
Variable Life Insurance
A type of Permanent Life insurance that allows some or all of the premium payments to be held in a separate account for investment purposes. The policy owner assumes this investment risk.
Waiver of Premium Rider
An optional add-on benefit that waives policy premiums after the insured has been totally disabled for a predetermined length of time, usually six months.
Whole Life Insurance
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