Life Insurance Glossary
Accelerated Death Benefit
If your carrier and policy allow, an accelerated death benefit can be added to your coverage. If you are diagnosed with a terminal illness, you may take cash advances against the policy’s death benefit.
Accidental Death Benefit
An accidental death benefit policy only pays a death benefit if your death is the result of a covered accident rather than an illness or other causes. Examples of accidental deaths include a fall or an automobile accident.
All Cause Death Benefit
Your death benefit it paid out for any cause of death, with any exceptions specified in the policy (e.g., suicide), under an all cause death benefit.
Your annual premium is the total premium you pay each year. It can also be called an annualized premium. Payment options, such as paying monthly, quarterly, semi-annually or annually, may be available depending on your carrier. You may also receive a discount for paying your premium on an annual basis.
Annually Renewable Term (ART)
If you select term coverage that renews every year instead of over a multi-year term, it’s an annually renewable term policy. ART premiums are based on a one-year contract and can change as you age, but you’re still guaranteed future protection.
Your beneficiary is the person or entity (like a trust, charity, or organization) that is paid the death benefit of your life insurance policy when you die. You can have one or more beneficiaries. While often family members, a beneficiary can also be a friend, business partner, estate, charity, or trust.
see Final Expense Insurance
If your permanent life insurance policy features a cash value savings component, you may be able to use the cash value for a loan or to pay your life insurance premiums. If you cancel or surrender your permanent life insurance policy, the money you can receive is called the cash value, cash surrender value, or surrender value. Any outstanding loans you’ve taken out against the policy would be subtracted the cash value.
Child Protection Rider (CPR)
A child protection rider provides additional coverage in case of a child’s untimely death, often for a very small premium increase. This rider is typically attached to a term life coverage and can last can last until your child is between age 22 and 30, depending on the carrier and policy. After the age limit is reached, the policy may be converted to permanent life insurance.
You may receive a conditional receipt to start your coverage if you send your first premium payment with your application. With a conditional receipt, as long as the policy is approved as applied for, coverage begins at the time of application. This can also be called a conditional binding receipt.
An insurance company typically has a window of time, called the contestability period, to investigate whether fraud or misrepresentation has occurred.
Naming a contingent beneficiary ensures your death benefit is paid out in the event your primary beneficiary dies before you, and you have not yet named a new one.
Your policy’s death benefit, or face amount or face value, is the dollar amount paid out to your beneficiary when you die.
Taxes levied on your property after you die can be referred to as death taxes. At the federal level, this kind of tax is called an estate tax. At the state level, it may be called an inheritance tax or other name.
Disability Income Rider
Adding a disability income rider to your life insurance policy provides income replacement through a monthly benefit payout in the event you become disabled and cannot work. Not all policy types allow for this rider.
Employer-Sponsored Group Life Insurance
Some employee benefits include free life insurance, typically a group policy. An employee is usually automatically enrolled and the employer pays most, if not all, of the premium. There are limits to this coverage, especially since most people won’t remain with the same employer for their whole career. Some group policies cannot be converted to an individual policy if you leave and/or premiums can increase significantly.
The wealth and assets you accrue during your lifetime, which can include life insurance payouts as well as the cash value built by a permanent life insurance policy, are transferred after you die. The process of preparing for that transfer and ensuring your will and other intentions are enacted is your estate plan.
Evidence of Insurability (EOI)
To show you’re eligible for certain types of coverage, you may need to provide information about your health through evidence of insurability. This is usually done through an application process.
see Death Benefit
see Death Benefit
Flexible Payment Schedule
While your premiums are calculated on an annual basis, you may choose to pay annually, semi-annually, quarterly, or monthly. Paying annually is typically the most affordable choice.
Final Expense Insurance
Final expense insurance is often used to cover end-of-life expenses including funeral or cremation costs, and outstanding medical or credit card debt. Typical policies range from $5,000 to $40,000 in coverage. This type of policy is sometimes called burial insurance.
Free Look Provision
When a carrier includes a free look provision, or free look period, you are provided a opportunity and time-frame to decide if you are satisfied with your policy or want to cancel and receive a full refund.
Graded Death Benefit
A graded death benefit increases the percentage of a total death benefit paid out over time. An example would be a first-year payout limited to 25%, a second-year payout limited to 50%, a third-year payout limited to 75% as percentage of a total death benefit. The fourth year and thereafter, the full death benefit would be paid out. This can be a good option for an individual interested in a permanent life insurance policy but worried health concerns will impact qualification.
Group Life Insurance
If a single contract covers a group of people, it is group life insurance. Typically, the policy owner is an employer or membership organization, and the coverage is a term life insurance policy. See employer-provided group life insurance.
Guaranteed Acceptance Life Insurance
With no health questions or medical exam required, a guaranteed acceptance life insurance policy means you cannot be turned down for coverage based on your health. Typically, these kinds of policies offer smaller amounts of coverage at relatively higher costs.
Guaranteed Insurability Rider With a guaranteed insurability rider, you can purchase additional life insurance coverage at a later date without providing evidence of insurability or undergoing a medical exam.
Guaranteed Issue Life Insurance
see Guaranteed Acceptance Life Insurance
Individual Life Insurance Policy
An individual life insurance policy only insures one person. The policyholder is also the only person who can make changes to the policy.
The person whose life is covered by a life insurance policy is the insured. The insured, often, but not always, owns the policy.
Some term life policies feature a level premium, so so your premium payments remain consistent for the duration of the contract length.
No Medical Exam Life Insurance
see Simplified Issue Life Insurance
The payout is the death benefit your beneficiary receives from an active life insurance policy. If your policy is term life, the payout is typically the face value listed. The payout may be adjusted if a policy earns cash value or you took out an allowed policy loan.
Permanent Life Insurance
Permanent life insurance provides lifelong coverage, even if you live beyond age 100, as long as you pay your premiums. These policies can also build a tax-deferred cash value, unlike term life insurance.
The policyholder is the individual who owns the life insurance policy. This person is often the same as the insured.
Premiums are the payments you make to keep your life insurance contract in force. Depending on your contract and carrier, premiums can be paid monthly, quarterly, semi-annually, or annually.
Rating agencies are independent bodies that assess a life insurance company’s ability to pay policy claims and overall financial strength. While the standards and grading scales are specific to each agency, the ratings are like grades. The higher the grade the better, so A is better than B. The four rating agencies are A .M. Best, Fitch, Moody’s, and Standard & Poor’s.
Return of Premium Rider
With this rider, some or all of your term life premiums may be recoverable if you do not die while your term coverage is in force.
A rider is a provision added to a standard insurance policy that amends the coverage or terms.
Life insurance companies consider a number of factors, including age, gender, coverage amount and term length to determine the total premium. The insurer’s underwriting guidelines also give each individual a risk classification, or risk class, based on health, family history, medical history, height/weight profile, motor vehicle record, participation in hazardous activities and smoking status. Each insurance company has a unique method for determining risk class. However, the classifications are fairly consistent and range from Preferred Plus or Preferred Elite to Substandard.
Simplified Issue Life Insurance
A simplified issue life insurance policy is also called a no medical exam life insurance or guaranteed life insurance. Coverage typically does not require a medical exam, but the insurance company may require a detailed medical questionnaire and review your medical records. You may also be refused for certain medical issues. Simplified issue life is typically best suited to older adults or those with health problems.
If a policy includes a suicide clause, beneficiaries receive only a refund of premiums paid, not the full death benefit amount, if the policyholder commits suicide within a stated period of the policy issue date. The state period is typically two years, and starts over if an individual replaces the original policy with a new one.
If you let your life insurance policy lapse or tell the issuing company you want to cancel, you surrender your policy and your life insurance coverage ends. You can receive the cash surrender value, if applicable, minus any penalties.
see Cash Value
Money accrued as a cash value in a permanent life policy is not taxed until you or you beneficiaries access it. The cash value is tax-deferred.
Term Conversion Rider
If your term life insurance includes a term conversion rider, you can convert the policy into a permanent life insurance policy before a set deadline passes. One benefit of this rider is that you will not need to undergo a medical exam.
Term Life Insurance
Term life insurance provides coverage for a set period of time, typically for 10, 15, 20, 25, or 30 years. Since the policy expires, there is no cash value built or lifelong coverage offered.
Underwriting is a life insurance company’s process for assessing the risk of insuring you and setting a premium cost for that coverage.
Universal Life Insurance
Universal life insurance is a type of permanent life insurance. It remains in force as long as premiums are paid and can build cash value, two features it shares with most permanent life policies. Two unique features of a universal life policy are the potential to increase or decrease the death benefit and the potential for some flexibility with premium payments.
Waiver of Premium
Some term life or permanent life insurance policies can include a waiver of premium rider. This rider pays all life insurance premiums due on your policy if you become disabled. Be sure to check your carrier and policy. Since it’s a rider, it is not a guaranteed benefit.
Whole Life Insurance
The most common type of permanent life insurance, whole life insurance, offers lifelong coverage assuming your premiums are paid. A whole life policy can build cash value. You can borrow against the cash value or surrender the policy for its cash value.