The insurance industry is notorious for jargon.
But fear not — our life insurance glossary rounds up and defines 40 common terms you may encounter as you apply for and purchase life insurance.
You can find them conveniently divided into four main categories below:
- Life insurance basics glossary
- Life insurance benefits glossary
- Life insurance application & underwriting glossary
- Life insurance contract glossary
The agent is the individual who is selling insurance to you, the customer. Agents are licensed by the states in which they do business and contracted with the insurance companies they represent. Typically, they earn a commission from the insurance company on a sold policy.
The applicant is the person or entity applying for a policy with an insurance company. In most cases, this will be the same as the policy owner and/or insured, but not always.
The beneficiary is the person(s) or entity(s) named in the life insurance policy as the death benefit recipient(s) upon the death of the insured.
Also known as a secondary beneficiary, the contingent beneficiary is the person(s) or entity(s) who receive death benefits from a life insurance policy if the primary beneficiary is deceased at the time benefits become payable.
Insurable interest means you have a financial interest in the life of the person for whom you are buying insurance coverage. In most cases, you have an insurable interest in family members and business partners, and can therefore have coverage and/or be named a beneficiary on their policy. However, you probably can’t buy a policy that covers the life of your neighbor because you don’t have an insurable interest in their life.
The insurance carrier is the company that issues the policy, receives the premium payment, and pays out the contractual benefits.
The insured is the individual whose life is covered by the life insurance policy. The death of the insured will trigger the payment of the death benefit.
The policy owner is the person or entity that owns the policy and maintains the contractual rights of a policy. For example, they can determine the beneficiary and whether to cancel the policy. In many cases, the policy owner is the same as the insured and/or the payor.
The policy payor is the person or entity that pays the necessary premium to keep the policy in force. The pay is often the policy owner, as well as the insured.
Accelerated death benefit
The accelerated death benefit will pay out — or accelerate — a portion of the policy’s death benefit in the event the insured is diagnosed as terminally ill.
Accidental death benefit
Accidental deaths are often the most disruptive to the families of an insured, so life insurance policies often include an additional accidental death benefit that goes over and above the contractual benefit if the insured’s death is caused by an accident.
Whole life and universal life insurance policies can build cash value, which the policy owner can access through withdrawals, loans, or policy surrender.
Cash surrender value
Cash surrender value is the amount of money you receive if you surrender your permanent policy. The cash surrender value typically equals the cash value minus outstanding loans and fees. Typically the surrender value is about 50 to 80 percent of the policy’s actual cash value.
The death benefit is the amount of money to be paid to the policy’s beneficiary(s) upon the death of the insured, as specified in the life insurance contract.
A rider is an optional benefit available on a life insurance contract. Riders vary by insurance company. Some are offered for no charge while others require an additional premium. Rider examples include accelerated benefits, accidental death benefit, and long-term care coverage.
[ Related Read: The 13 Most Important Life Insurance Riders ]
Term conversion is a provision that enables a term life policy owner to convert the contract to a permanent policy, such as whole life insurance, with the same amount of coverage and without additional underwriting
Waiver of premium
Waiver of premium is a life insurance benefit, either part of the base policy or available as a rider, that cancels premium payments if the insured becomes totally disabled.
Attending Physician’s Statement (APS)
An APS is a document that provides the proposed insured’s medical history and exam results. It is used by the insurance company to determine underwriting classification.
Backdating allows insurance companies to make an insured “younger" by making the effective date of the policy earlier than the application date. This can result in a more favorable premium. You can typically backdate a policy for up to six months.
Concealment is when a life insurance applicant deliberately hides or fails to disclose key information during the underwriting process. Hiding the fact that you use tobacco on your application is an example of concealment.
The face amount, or face value, is the amount of coverage applied for.
Guaranteed issue is a type of insurance policy that does not require medical underwriting or insurability. This is most common with group life insurance policies.
Insurability is what life insurance companies evaluate to see if an individual is eligible for coverage. Insurers look at income, age, financial circumstances, and health history to determine an applicant's insurability.
A paramedical exam is the health exam that the insured will undergo to determine their health and rating class. There is no charge for the exam.
Insurance companies have underwriting guidelines they use to categorize applicants by rating classes based on the amount of risk they pose of filing a claim. Rating classes determine the premium amount required. Insureds may be classified as standard risk, substandard, preferred, or other terms.
Underwriting is the process of evaluating the risk posed by an insured based on age, gender, health, job occupation, and other personal criteria. The underwriting process determines whether an insured qualifies for life insurance coverage and what they will be required to pay in premium.
An amendment is a formal document that corrects or revises an insurance policy after it’s been issued. It becomes part of the legal insurance contract. A common amendment occurs when an insurance company is purchased by another, informing existing policy owners that the acquiring company is now legally responsible for policy benefits.
An assignment is a transfer of the policy’s ownership rights from one person or entity to another. If you use your policy as collateral for a loan, it’s called a collateral assignment.
A claim is the process of collecting the life insurance policy death benefit. You file a claim to the life insurance company upon the death of the insured.
If the insurance company finds material misrepresentations on the application during this period, it can deny a claim if it occurs within the policy's contestability period — typically the first two years from the effective date. For example, if the insured’s age or health condition was not accurate on the application and the insurance company discovers this during the contestability period, a claim can be denied. Once this period expires, the insurance company has no legal recourse if it finds inaccurate application information.
An effective date, also known as the policy date or issue date, is the date a life insurance policy goes into force.
Your life insurance contract will likely include exclusions, which are scenarios under which the policy will not pay a death benefit. Common exclusions for life insurance include death by suicide or while committing a crime.
Once a policy has been issued, you can legally cancel it without penalty and with a full refund of any paid premiums if done inside the free-look period. Each state has a minimum free-look period, ranging from 10 to 30 days after policy delivery. Some insurers offer free looks above the state minimum.
You have time, typically 30 days, from the due date of your premium payment to pay the required premium before the policy lapses. If the insured passes away during a grace period, the policy’s death benefit will be paid, minus the unpaid premium amount.
If a life insurance policy contains an irrevocable feature, the policyholder cannot make changes to the life insurance contract or remove the beneficiary from the policy without the beneficiary’s consent.
A lapse refers to a policy's termination due to non-payment of premium.
Premium is the amount of money required to be paid by the policy payor/owner to the insurance company to provide coverage.
Settlement is the process of the life insurance company paying out benefits on a policy claim.
A suicide clause is a provision that states if the insured dies by suicide within a certain period, typically two years, that the policy’s death benefit will not be paid out. Instead, the insurance company will return premiums paid.
To surrender is to cancel your life insurance contract.
Jack Wolstenholm is the head of content at Breeze.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.