Glossary of Life Insurance Terms

To help you navigate through the process of trying to pick a policy or plan, there are a list of helpful definitions and life insurance terms that you may want to familiarize yourself with to fully understand what is being offered and provided. The list of terms and their definitions are some of the most commonly used terms but is not considered the full list.

  • Accelerated Benefit Provision: A provision in many new policies which will allow the policy owner to receive a portion of the death benefit early if the insured person is diagnosed with a terminal illness or permanently confined to a nursing home.
  • Accidental Death Benefit: A rider added to a policy that provides an additional benefit if the insured dies from accidental causes.
  • Certificate: A document provided to a person insured under a group insurance policy that provides evidence that the coverage exists.
  • Evidence of Insurability: Medical and other information about a person applying for insurance that the life insurance company keeps confidential but uses to decide whether the policy can be issued and what premiums will be charged.
  • Face Amount: The amount to be paid to the beneficiary when the insured dies. It will be reduced by any unpaid policy loans and interest on those loans and may be increased by any dividends.
  • Free Look: The right of the policyowner to have a period of ten or more days to examine an insurance policy, and if not satisfied, return it to the company for a full refund of all amounts paid.
  • Grace Period: A period of time (usually 31 days) after the premium due date when an overdue premium may be paid without penalty. The policy remains in force throughout the period.
  • Guaranteed Insurability: An option that permits the policyholder to buy additional stated amounts of life insurance at certain times in the future, without having to provide new evidence of insurability.
  • Illustration: A document used in life insurance sales presentations showing year-by-year numbers indicating how a policy will work. Usually, it assumes that amounts being paid today will continue in all future years.

A glossary of life insurance terms

  • Insured: The person whose life is covered by a life insurance policy; the policyowner; the policyholder.
  • Lapse: The discontinuation of insurance without cash value when the required premium is not paid. If cash value exists, there may be nonforfeiture provisions available.
  • Loan Value: The amount which can be borrowed by the policyowner from the company using the value of the policy as collateral. Usually, the interest rate payable on the loan varies based on an index defined in the policy.
  • Mode of Premium Payment: The frequency of premium payments during the policy year. Premium payments can usually be made on annual, semi-annual, quarterly, or monthly mode.
  • Mortality Table: A statistical table showing the death rate (probability of death) for each age.
  • Nonforfeiture Options: A provision in the policy that allows the policyowner to choose how the cash value of the policy will be used if the policy is surrendered or lapses due to nonpayment of premium.
  • Ownership: All rights, benefits, and privileges under a policy controlled by the owner, who is usually the insured. Ownership may be transferred or assigned to someone else by written request of the current owner.
  • Paid-Up Insurance: A life insurance policy where all premiums have already been paid, with no further premium payment due.
  • Participating Insurance: Insurance on which the policyowner is entitled to share in the surplus earnings of the company through dividends, which reflect the difference between the premium charged and the actual earnings and costs of providing coverage.
  • Policy: The printed document issued to the policyowner by the company stating the terms of the insurance contract.
  • Policy Year: A one-year period starting on the day and the month the policy was issued. The first policy year starts on the date of issue and ends on the day before the policy’s first anniversary date.
  • Premium: The payment a policyowner is required to make to an insurance company to purchase insurance coverage and to keep the policy in force.

A glossary of life insurance terms

  • Rated Policy: A policy issued with an additional premium to cover the extra risk involved if an insured has impaired health, a hazardous occupation or hobby, or is a private pilot.
  • Reinstatement: The restoring of a lapsed or surrendered policy to full force and effect. The company requires evidence of insurability and payment of all amounts necessary, including interest, to put the policy into the condition it would have been in had the lapse or surrender not occurred. The company is not obligated to reinstate a policy.
  • Rider: A provision added to a policy that provides additional benefits, usually accompanied by a corresponding premium increase or change.
  • Settlement Option: The manner in which the insured or beneficiary may choose to have the policy proceeds paid.
  • Suicide Clause: A policy provision which reduces or eliminates the amount to be paid if the insured dies from suicide within the first two policy years.
  • Standard Risk: The classification of an applicant for a life insurance policy who fulfills the physical, occupational, and other requirements on which most of the company’s policies are issued. Someone whose characteristics are more favorable may be classified as a “Preferred Risk.” When the characteristics are less favorable, the applicant may be characterized as “Rated” or refused coverage altogether.
  • Surrender: To voluntarily terminate or cancel a policy for its cash value or other nonforfeiture options.
  • Underwriting: The process of evaluating applicants for insurance and classifying them fairly, so the appropriate premium rate may be charged. This may involve a physical examination of the applicant.
  • Waiver of Premium: A rider added to policy that will waive the premium payments required by an insured during the total disability of the insured.