Table of Contents
A
A.M. Best
An independent insurance rating firm that ranks firms on financial strength, operating performance and market profile.
Accelerated Death Benefit
Provides a lien secured by the death benefit while the insured person is terminally ill or if they meet certain other conditions. The owner must furnish medical proof of the terminal illness or other condition.
Accelerated Underwriting
A streamlined underwriting process that uses advanced technology and data to quickly assess an applicant's risk and eligibility for life insurance coverage, often eliminating the need for a medical exam.
Accept/Reject Underwriting
An acceptance or rejection for underwriting based on the answers to the questions on the application. An applicant is either accepted and issued a policy, or rejected and denied coverage. In most cases, no additional medical records or tests are required to determine an applicant's eligibility.
Accidental Death Benefit
An additional death benefit to be paid if death is a direct result of an "accident," (as defined in the policy.)
Accidental Death and Dismemberment Rider
A supplemental policy add-on that provides an additional death benefit if the insured dies due to an accident or suffers a severe injury resulting in the loss of limbs or certain bodily functions.
Accrued Interest
The interest that has accumulated on a life insurance policy's cash value or investment component over a specific period of time.
Activities of Daily Living (ADLs)
There are six activities considered ADLs, which are routine daily activities generally considered necessary for a self-sustaining person to remain independent. The six ADLs are eating, bathing, continence, dressing, toileting and transferring (movement and mobility).
Actual Age
The insured's current age at a specific point in time, which may be different from their age based on their last birthday due to the timing of the policy issuance or renewal.
Actuary
A person who uses mathematics and statistics to determine insurance and annuity calculations, such as life expectancy, premiums, rates, etc.
Adverse Selection
The tendency for individuals with higher risk profiles to be more likely to apply for or maintain life insurance coverage, which can result in higher premiums or stricter underwriting requirements for the overall pool of insured individuals.
Agent
An individual who represents an insurance company and is authorized to sell life insurance policies on its behalf. Agents assist clients with policy selection, provide information, and facilitate the application process.
Annual Renewable Term Life Insurance
A type of term life insurance policy that offers coverage for a one-year term and allows the policyholder to renew the coverage annually without the need for a new application or medical underwriting, though premiums may increase with each renewal.
Annuitant
The person whose lifetime is used as the measuring period to determine how long benefits are payable under an annuity.
Annuity
A means of saving money on a tax-deferred basis, when purchased from an insurance company. The money in the annuity can be paid out as a partial withdrawal, as a full withdrawal or as a guaranteed income, usually at retirement.
Annuity Certain
An annuity that guarantees income payments for a fixed period, such as 10 or 20 years, regardless of the annuitant's lifespan. If the annuitant passes away before the end of the specified period, the remaining payments may go to a designated beneficiary.
Annuity Payments
Money that either the policyholder or a beneficiary receives from an annuity. The type and dollar value of the annuity determine when and how such money is paid out.
Application
The form completed by an applicant when applying for a life insurance policy. It includes personal information, medical history, and other relevant details used by the insurance company to assess risk and determine policy eligibility.
Attending Physician Statement (APS)
A report completed by the applicant's primary physician at the request of the insurance company. The APS provides detailed medical information about the applicant's health, including medical conditions, treatments, and test results, to assist in the underwriting process.
Avocation
A person's hobbies, activities, or occupations outside of their primary employment. Some avocations, such as skydiving or rock climbing, may be considered higher risk by insurance companies and could impact policy eligibility or premiums.
B
Backdating
The practice of assigning an earlier effective date to a life insurance policy than the actual application date. This may be done to secure a lower premium based on the insured's younger age at the backdated date, but it must comply with legal and regulatory requirements.
Benchmark
A point of reference used for comparison.
Beneficiary
The party or parties designated as the recipient(s) on death to receive money from a life insurance policy or annuity.
Benefit
The amount of money paid when an insurance claim is approved; also referred to as a policy benefit.
Bonus Rate Annuity
An annuity that offers an additional bonus rate on top of the regular interest rate. The bonus rate is typically applied to the annuity's initial premium or accumulated value and can enhance the annuity's growth over time.
Burial Insurance
Also known as final expense insurance or funeral insurance, it is a type of life insurance designed to cover the costs associated with a person's funeral and burial. It provides a smaller death benefit compared to traditional life insurance policies and is often easier to qualify for with simplified underwriting processes. The proceeds can be used by the beneficiary to pay for funeral expenses and related costs.
C
Cash Value Life Insurance
In a life insurance policy, the cash value is the amount of money—before adjustment for factors such as policy loans or late premiums—that the policyowner will receive if s/he allows the policy to lapse or cancels the coverage and surrenders the policy to the insurance company. Cash values are a feature of most types of permanent life insurance, such as whole life and universal life. Typically, a term life insurance policy will not have cash value.
Cash Surrender Value
The amount of money that a policyholder is entitled to receive if they choose to terminate or surrender their permanent life insurance policy before its maturity or death benefit is paid. It represents the policy's cash accumulation or surrenderable value, minus any applicable fees or surrender charges.
Child Rider
A supplemental benefit that can be added to a life insurance policy to provide coverage for the insured's child or children. In the event of a child's death, the rider pays a death benefit to help cover funeral expenses or other financial obligations.
Claim
A formal request made by the policyholder or beneficiary to the insurance company, seeking payment of the policy's benefits upon the occurrence of the insured event, such as the death of the insured. The claim is typically supported by relevant documentation and evidence to verify the claimant's eligibility for the benefits.
Collateral Assignment
A provision where the policyholder assigns the rights to a life insurance policy as collateral for a loan or debt. It allows a lender to receive the policy's death benefit if the insured dies before the loan or debt is repaid, providing added security for the lender.
Company Ratings
Ratings assigned by independent rating agencies to insurance companies based on their financial strength, stability, and ability to fulfill their policyholder obligations. These ratings, such as those provided by agencies like A.M. Best, Fitch, Standard & Poor's, and Moody's, help consumers assess the financial health and reliability of insurance companies before purchasing a policy.
Concealment
The intentional withholding or misrepresentation of material information by an applicant or policyholder during the insurance application process. Failure to disclose important facts that could affect the insurer's decision to issue the policy or set premium rates may result in policy cancellation or denial of a claim.
Contestability Period
A specific timeframe, usually the first two years after a life insurance policy becomes effective, during which the insurance company has the right to contest the validity of the policy based on material misrepresentations or omissions made by the insured in the application. After this period, the policy typically becomes incontestable, and the insurer cannot deny a claim based on non-fraudulent misstatements.
Contingent Beneficiary
The person or entity designated to receive the policy's death benefit if the primary beneficiary predeceases the insured or is unable to receive the benefit. The contingent beneficiary comes into play when the primary beneficiary is unable to fulfill their role, ensuring that the death benefit is still distributed as intended.
Convertible Term Insurance
Life insurance coverage that is purchased to cover someone for a specific period of time that can, during or at the end of the term, be converted to permanent life insurance. Permanent life coverage is available regardless of health conditions.
Critical Illness Rider
An optional rider that can be added to a life insurance policy to provide coverage for specific critical illnesses, such as cancer, heart attack, or stroke. If the insured is diagnosed with a covered critical illness, the rider pays out a lump sum benefit that can be used to cover medical expenses, living expenses, or any other financial needs.
Current Interest Rate
The current rate of interest earned on a life insurance policy or annuity contract.
D
Death Benefit
The amount paid upon death to a beneficiary according to the terms of a life policy or annuity contract. The amount is stated in the policy and is paid at face value, plus the proceeds from any applicable insurance riders, and minus any outstanding loan amounts.
Death Claim
A request for payment due to death under the terms of a life insurance policy or annuity contract.
Decreasing Term Life Insurance
A type of term life insurance where the death benefit gradually decreases over the policy's term. Typically used to cover specific debts or obligations that decrease over time, such as a mortgage or loan. The premiums remain level throughout the term, but the coverage amount decreases, making it a more affordable option for individuals with decreasing financial responsibilities.
Deferred Annuity
A financial product that allows a person to accumulate money on a tax-deferred basis, when purchased from an insurance company, that can subsequently be paid out as income stream or taken in a lump sum.
Defined-Benefit Plan
A retirement plan sponsored by an employer in which the benefits an employee receives at retirement are clearly defined and are not based on the amount that the employee and/or employer have contributed.
Defined-Contribution Plan
A retirement plan sponsored by an employer in which the benefits an employee receives at retirement are based solely on the contributions made by the employee and the employer, and the earnings thereon. A 401(k) is a defined-contribution plan.
Direct Response
A distribution channel for life insurance where policies are sold directly to consumers without involving an intermediary or agent. Direct response companies often use direct mail, television, internet, or telephone marketing to reach potential customers, allowing individuals to purchase coverage without meeting face-to-face with an agent.
Disability Income Rider
A supplementary benefit that can be added to a life insurance policy to provide income replacement in the event of the insured's total or partial disability. If the insured becomes disabled and meets the policy's definition of disability, the rider pays out a regular income stream to help cover living expenses during the disability period.
Disclosure Statement
A document provided by the insurance company to the policyholder or applicant, outlining important information about the life insurance policy, its terms, conditions, benefits, exclusions, and any associated costs or fees. The disclosure statement ensures transparency and provides the policyholder with a clear understanding of the policy's features before making a purchasing decision.
Dividend
In the context of participating life insurance policies, dividends are a portion of the insurer's surplus earnings that are distributed to policyholders. These dividends are not guaranteed and depend on the insurance company's financial performance. Policyholders can choose to receive dividends in various ways, such as cash payments, premium reductions, additional coverage, or accumulation in a separate account known as the policy's cash value. Dividends can enhance the policy's overall value or be used to offset premiums.
Double Indemnity
A provision in certain life insurance policies (also known as an accidental death benefit) that pays double the death benefit to a beneficiary if the insured dies in an accident or in another way as specified by the policy.
Duplicate Policy/Contract
A duplicate life policy or annuity contract that an owner request if the original is lost or destroyed.
E
Effective Date
The date on which a life insurance policy becomes active and coverage begins. It marks the start of the policy's term or period of protection, and premium payments are typically due from this date. The effective date is usually specified in the policy contract and can be different from the date of application or policy issuance.
Endorsement
An agreement attached to an insurance policy that adds or subtracts coverage and takes the place of the original terms of the policy.
Endowment Life Insurance
A policy that combines death benefit protection with a savings component. It guarantees a payout to the policyholder if they reach a specified age (endowment age) while they are still alive. If the insured individual passes away before the endowment age, the death benefit is paid to the beneficiaries. Endowment life insurance policies typically have higher premiums compared to other types of life insurance, as they offer both a savings element and death benefit protection.
Evidence of Insurability
Information or documentation required by the insurance company to assess an applicant's health, lifestyle, and risk factors to determine their eligibility for coverage. It often includes medical exams, questionnaires, medical records, or other relevant evidence that helps underwriters evaluate the applicant's insurability and set appropriate premiums.
Exclusions
Specific conditions, circumstances, or events that are not covered by a life insurance policy. These exclusions are detailed in the policy contract and typically include suicides within a specific timeframe, acts of war, participation in hazardous activities, or pre-existing medical conditions. Claims related to excluded items will not be paid by the insurer.
Expense
In the context of life insurance, expenses refer to the costs incurred by the insurance company in providing and administering the policies. These expenses can include sales commissions, underwriting costs, administrative fees, advertising expenses, and other operational costs. Insurance companies factor these expenses into premium calculations to ensure they cover their operational costs while maintaining profitability.
Extended Coverage
A written agreement or clause added to an insurance policy that provides additional coverage beyond the coverage provided in a basic policy.
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F
Face Value
The death benefit amount specified in a life insurance policy, which is the amount paid out to the beneficiary upon the insured's death. It represents the coverage amount and is typically chosen by the policyholder at the time of policy purchase based on their financial needs and objectives.
Final Expense Life Insurance
A type of life insurance specifically designed to cover the costs associated with a person's final expenses, such as funeral and burial expenses. It offers a smaller death benefit compared to traditional life insurance policies, making it more affordable and accessible for individuals who primarily seek coverage for these specific expenses.
Fitch
An independent insurance rating firm that rates firms based on financial strength.
Fixed Amount Option
A settlement option available to beneficiaries where the life insurance proceeds are paid out in fixed periodic installments of a predetermined amount. This option ensures a steady income stream for a specified period, even if the principal amount of the policy is exhausted.
Free Look Period
A specified period of time after purchasing a life insurance policy during which the policyholder can review the policy's terms and conditions. If unsatisfied, the policyholder can cancel the policy and receive a full refund of any premiums paid. The duration of the free look period varies by jurisdiction and is intended to provide consumers with an opportunity to make an informed decision without penalty.
G
Grace Period
The period of time after a loan or insurance payment due date before cancellation of the policy or default due to non-payment.
Group Coverage
Life insurance coverage provided to a group of individuals, such as employees of a company or members of an organization. Group coverage is typically offered at a lower cost than individual policies due to the risk spread across the group. The policyholder, often an employer or organization, negotiates the terms and coverage amount on behalf of the group, and individuals within the group are enrolled without the need for individual underwriting.
Guaranteed Interest Rate
The minimum rate of interest guaranteed to be credited to a life insurance policy or annuity contract.
Guaranteed Issue
A type of life insurance policy that guarantees coverage without requiring the applicant to undergo a medical examination or provide detailed health information. Guaranteed issue policies are typically offered to individuals who may have difficulty qualifying for traditional life insurance due to health conditions or other factors. While they provide coverage, they often have limited benefits and higher premiums.
Guaranteed Renewable
An insurance policy provision that guarantees the right to renew the policy for the period stated in the policy, as long as premiums are paid. Premiums may increase, but coverage cannot be changed or denied.
Guaranteed Universal Life Insurance
A type of permanent life insurance that combines the features of universal life insurance with a guaranteed death benefit. It provides lifelong coverage with flexible premium payments and a cash value component, while ensuring that the death benefit remains guaranteed regardless of changes in the cash value performance. It offers a balance between flexibility and stability, appealing to those seeking permanent coverage with predictable benefits.
H
Hazard
A condition or factor that increases the likelihood of a loss or event covered by an insurance policy. Hazards can be physical, such as a hazardous occupation or risky hobbies, or moral, such as a history of fraudulent activities. Insurance companies assess hazards to determine the appropriate premiums and underwriting decisions for a policy.
I
Immediate Annuity
An annuity that begins paying out income payments within 12 months or less after the premium is paid.
Index
A measurement of the changes in the economy and financial markets.
Indexed Universal Life Insurance
A universal life insurance product that offers cash value growth potential in the form of interest credits linked, in part, to the performance of a market index, with protection from downside risk through a minimum interest rate guarantee.
Insurable Interest
A legal requirement for obtaining a life insurance policy, it refers to the financial or emotional interest an individual has in the life or well-being of another person. Generally, insurable interest exists between close family members, spouses, or business partners, and it ensures that the policyholder has a legitimate reason to protect against the financial consequences of the insured's death.
Insurance Amount
Basic policy coverage amount and, if applicable, any supplementary term coverage.
Insurance Policy
A legal contract between the policyholder and the insurance company that outlines the terms, conditions, coverage, and obligations of the insurance agreement. The policy specifies the types of risks covered, the premium payments required, the duration of coverage, and the benefits or claims payable in the event of a covered loss or event.
Insured
The person whose life, health, or property is covered by an insurance policy. The insured may be the policyholder or another person with an insurable interest. The insurance policy provides financial protection to the insured and pays out benefits to the designated beneficiaries upon the occurrence of a covered event, such as death or disability.
Insured Insurability Benefit
Provides the insured with the right to purchase additional insurance on specified option dates occurring after issue of the original policy without evidence of insurability.
Insurer
The insurance company or entity that underwrites and assumes the risks specified in an insurance policy. The insurer collects premiums from policyholders and agrees to pay out benefits or claims in accordance with the policy terms. Insurers use actuarial principles and risk assessment to determine premiums and manage the financial aspects of providing insurance coverage.
Interest Option
A provision in a life insurance policy that allows the policyholder or beneficiary to choose how the policy's proceeds or cash value will be paid out. Common interest options include lump sum payments, installment payments, annuity payments, or leaving the funds with the insurer to accrue interest.
Irrevocable
A designation or feature in a life insurance policy that cannot be changed or revoked without the consent of all parties involved. An irrevocable beneficiary designation, for example, means that the policyholder cannot change the beneficiary without the beneficiary's agreement.
Irrevocable Beneficiary
A permanent, unchangeable designation of a beneficiary. It provides added security and protection for the named beneficiaries.
Irrevocable Trust
A trust agreement that cannot be altered, amended, revoked or terminated and is generally not subject to estate taxes.
Issue Age
The age of the insured on the date upon which a policy became effective.
J
Joint Life Insurance
One insurance policy that covers two lives, with benefits payable either at the first death or the second death.
Joint Owner
A person named jointly with another person as owner of an annuity contract or life insurance policy.
Joint Tenancy With Rights of Survivorship
Equal ownership of property by the insured and at least one other person. When the owner dies, ownership passes to the other co-owner(s) instead of to the estate.
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K
Key Employees
For purposes of the "top-heavy" rules, a key employee is one who is (1) an officer whose salary exceeds $135,000 (officer status is limited to the greater of three or 10 percent of all employees, but not more than 50), (2) a more-than-5-percent owner of the employer, or (3) a more-than-1-percent owner of the employer whose salary exceeds $150,000.
L
Lapsed
A life insurance policy that has terminated or expired due to non-payment of premiums within the grace period. When a policy lapses, the coverage ceases, and the policyholder is no longer protected. In some cases, policyholders may have the option to reinstate a lapsed policy by paying the overdue premiums and meeting certain requirements set by the insurance company.
Lapse Rate
The percentage of life insurance policies that terminate or expire due to non-payment of premiums within a given period.
Level Term Life Insurance
A type of life insurance where the death benefit remains the same level throughout the policy term. The premium payments also remain constant during the specified term, typically 10, 20, or 30 years.
Life Annuity
An annuity that pays out income periodically during life and ends upon death.
Life Expectancy
A statistical measurement of the number of years a person is expected to live.
Life Income Option
A settlement option in a life insurance policy that provides the beneficiary with a regular income stream instead of a lump sum payment. The life income option guarantees periodic payments to the beneficiary for the duration of their life. The payment amount is determined based on factors such as the policy's death benefit, the beneficiary's age, and the insurer's calculation methods.
Life Insurance
A policy that pays a beneficiary a specified death benefit amount when the insured dies.
Life Insurance Classification
The process of evaluating an applicant's risk profile to determine the appropriate premium rates and underwriting decisions for a life insurance policy. Insurers use various factors such as age, health, lifestyle, occupation, and hobbies to classify applicants into different risk categories. These classifications, such as preferred, standard, or substandard, help insurers assess the likelihood of the insured's death or other events and set the corresponding premium amounts.
Limited Benefit
Benefit is reduced for certain conditions.
Loan Interest Rate
The percentage of interest charged when a loan is taken against the cash value of a life insurance policy. The applicable rate is stated in the policy contract.
Loan Value
An amount that can be borrowed from a life insurance policy.
Long-Term Care Rider
An additional benefit that can be added to a life insurance policy to provide coverage for long-term care expenses. The rider allows policyholders to access a portion of the policy's death benefit while they are still alive if they require long-term care due to chronic illness, disability, or cognitive impairment.
M
Material Misrepresentation
A significant false statement or omission of information made by the applicant during the life insurance application process that, if discovered by the insurer, could have influenced the underwriting decision or premium calculation. Material misrepresentation can result in denial of a claim or cancellation of the policy.
Medical Information Bureau
An organization that collects and maintains medical and non-medical information on individuals who have applied for life, health, disability, or long-term care insurance. Insurance companies share applicants' data with the Medical Information Bureau (MIB) to obtain a comprehensive view of an applicant's medical history and to detect potential misrepresentations. The MIB acts as a central repository of information that aids insurers in assessing risk and making informed underwriting decisions.
Misstatement of Age
An unintentional or intentional error in stating one's age on a life insurance application. Misstatement of age can occur due to typographical errors, confusion, or attempts to obtain more favorable premium rates. Insurance companies rely on accurate age information to assess risk and determine appropriate premiums. If a misstatement of age is discovered during the claims process, the insurer may adjust the benefits or premiums based on the correct age at the time of policy issuance.
Modified Endowment Contract (MEC)
A tax qualification of a life insurance policy whose cumulative premiums exceed federal tax law limits. The taxation structure and IRS policy classification changes after becoming a modified endowment policy.
Mortality
The statistical measurement of death rates within a specific population or group. Mortality tables or mortality rates are used by insurance companies to estimate the risk of death and calculate premiums for life insurance policies. These tables are based on historical data and provide insights into life expectancy and mortality probabilities based on factors such as age, gender, health, and lifestyle.
Mortgage Protection Insurance
A type of life insurance specifically designed to pay off an outstanding mortgage balance in the event of the insured's death. Mortgage protection insurance provides financial security for homeowners by ensuring that their mortgage debt is covered, allowing their loved ones to maintain ownership of the property. The death benefit is typically structured to match the outstanding mortgage amount, and the policy is often offered as a decreasing term policy, where the coverage amount decreases over time as the mortgage balance decreases.
N
No-Lapse Guarantee
Agreement by the insurance company to keep the universal life insurance policy in force, even if the cash value becomes zero or less than zero, provided that the minimum premium requirements stated in the policy are met.
Non-Forfeiture
A provision in a life insurance policy that guarantees the policyholder's right to receive some value or benefit, even if the policy lapses or is surrendered. Non-forfeiture options include converting the policy's cash value into a reduced paid-up policy, receiving the cash surrender value, or using the accumulated cash value to extend the coverage for a limited period. These options ensure that policyholders do not lose all the premiums paid if they are unable to continue the policy or choose to terminate it.
Non-Participating
A type of life insurance policy where the policyholder does not participate in the insurance company's profits or receive dividends. Non-participating policies have fixed premiums, death benefits, and cash values that are determined at the time of purchase and are not influenced by the company's financial performance or policyholders' experiences. Non-participating policies are typically contrasted with participating policies, which allow policyholders to receive dividends or share in the company's profits based on the policy's performance.
O
Open Enrollment
A specific period during which individuals can enroll in or make changes to their life insurance coverage without undergoing medical underwriting or providing evidence of insurability. Open enrollment is typically offered by group life insurance plans or employer-sponsored policies. It allows eligible individuals to obtain coverage or modify their existing coverage, such as increasing the death benefit or adding riders, regardless of their health status. Open enrollment periods may occur annually or during certain qualifying life events, providing opportunities for individuals to secure or adjust their life insurance protection.
Overfunded Life Insurance
Refers to a permanent life insurance policy in which the policyholder pays more in premiums than is required to cover the cost of insurance protection. The excess premium payments are allocated towards the cash value component of the policy, allowing it to grow more quickly. Overfunding a life insurance policy can result in potential tax advantages, such as tax-deferred growth and the ability to access the cash value through policy loans or withdrawals.
Owner
The person who owns a life insurance policy or annuity.
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P
Paid to Date
For traditional life insurance policies, this is the actual date to which the premium is paid. A similar concept applies to universal life policies. There is a set monthly date on which charges and expenses are deducted from the policy cash value. If not sufficient, policy will enter a grace period.
Paramedical Exam
A physical examination that may be required to confirm height, weight and overall general health; commonly referred to as a paramed exam.
Participating Policy
A type of life insurance policy that allows the policyholder to share in the insurance company's profits through the payment of dividends. Policyholders who own participating policies may receive a portion of the company's surplus earnings in the form of dividends, which can be used to reduce premiums, increase the policy's cash value, or be received as a cash payment. Participating policies are typically associated with mutual insurance companies, where policyholders are considered shareholders and can participate in the company's financial success.
Permanent Life Insurance
A type of life insurance that provides coverage for the entire lifetime of the insured, as long as the premiums are paid. Permanent life insurance includes policies such as whole life insurance, universal life insurance, and variable life insurance. These policies offer a death benefit as well as a cash value component that accumulates over time. Permanent life insurance provides lifelong protection and can offer features like flexible premiums, potential cash value growth, and the ability to access funds through loans or withdrawals.
Policy
A legal contract between the policyholder and the insurance company that outlines the terms, conditions, and coverage of an insurance agreement. The policy specifies details such as the premium payments, the duration of coverage, the death benefit amount, and any additional features or riders included. It serves as a binding document that governs the rights and obligations of both the policyholder and the insurance company.
Policy Number
The identifying number assigned to a policy contract for a life insurance product or fixed annuity.
Policy Proceeds
The amount of money payable by the insurance company to the designated beneficiaries upon the death of the insured. Policy proceeds refer to the death benefit that is paid out to the beneficiaries according to the terms of the life insurance policy. The proceeds can be a lump sum payment or structured as annuity payments, providing financial support to the beneficiaries after the insured's passing.
Policyholder
The individual or entity that owns a life insurance policy and holds the contractual rights and responsibilities associated with it. The policyholder is the person who pays the premiums and is entitled to the benefits provided by the policy. They have the authority to make changes to the policy, such as adding or changing beneficiaries, updating contact information, or modifying coverage amounts.
Preferred Rates
The lower premium rates offered to individuals who meet certain health, lifestyle, or underwriting criteria set by the insurance company. Preferred rates are typically offered to individuals who are in excellent health, have a favorable medical history, and engage in healthy behaviors. Insurance companies consider preferred individuals as lower risk, and therefore, offer them lower premiums compared to standard or substandard rates.
Premium
The amount of money paid as either a single payment or periodic payments to maintain insurance coverage.
Premium Payer
If not the owner — the person to whom notices are mailed and who remits the premium payments to the company. The premium payer has only limited rights to access policy or annuity information.
Primary Beneficiary
The person or entity designated by the policyholder to receive the death benefit of a life insurance policy upon the insured's death. The primary beneficiary is the first in line to receive the policy proceeds. The policyholder has the flexibility to name one or more primary beneficiaries and can allocate the benefit among them in specific percentages or amounts.
Pure Insurance
In life insurance, the difference between the face amount and cash value. Also referred to as the net amount at risk.
Q
Quote
A preliminary offer or estimate provided by an insurance company that outlines the premium amount and coverage details for a specific life insurance policy. A quote allows potential policyholders to assess the cost and benefits of the policy before making a purchase decision. It is based on the information provided by the applicant but is subject to further evaluation during the underwriting process.
R
Rated Policy
Insurance that costs a higher premium because the insured has a physical impairment, past medical condition, hazardous occupation, dangerous hobby, or another underwriting risk.
Reduced Paid-up Insurance
An option available in some life insurance policies that allows policyholders to convert their existing coverage into a paid-up policy with a reduced death benefit and no further premium payments required. The policyholder essentially uses the accumulated cash value of the original policy to purchase a new policy with a lower face value. Reduced paid-up insurance can be chosen as an alternative when policyholders can no longer afford the premium payments but still wish to retain some level of coverage.
Reinstatement
The process of restoring a lapsed life insurance policy to active status after the policyholder has missed premium payments. Reinstatement typically involves paying any outstanding premiums, including interest or penalties, and meeting certain conditions set by the insurance company, such as providing evidence of insurability. Once reinstated, the policy resumes its original terms and coverage, and the policyholder regains the benefits and protections of the policy.
Relationship
Defines how an individual or organization is connected to a life insurance policy or fixed annuity contract. The most common relationships are insured, owner and payer.
Relationship to Insured/Annuitant
Defines how a beneficiary is related to the insured person/annuitant (e.g., spouse, mother, brother, friend, etc.).
Requirements
A variety of different items that are ordered by underwriters so they can effectively evaluate risk and make an assessment on an applicant's insurability. When the insured dies, this feature on select policies will return all or part of the premiums paid to the owner, to the owner's beneficiary if the owner is deceased, or to the owner's estate if there is no beneficiary.
Revocable Beneficiary
A revocable beneficiary is a named beneficiary in a life insurance policy whose designation can be changed or revoked by the policyholder at any time. The policyholder has the flexibility to modify the beneficiary designation without seeking the consent of the existing beneficiary. This allows the policyholder to adapt to changing circumstances, such as changes in relationships or financial situations, and ensure that the intended beneficiaries receive the death benefit.
Rider
An attachment that amends a contract or policy and in many cases adds benefits or features.
Risk Classification
The process of categorizing individuals or groups into different risk levels based on various factors to determine their eligibility and premium rates for life insurance coverage.
S
Settlement Options
The various ways in which the death benefit of a life insurance policy can be paid out to the beneficiaries upon the death of the insured.
Social Security Number (SSN)
A nine-digit identification number issued by the Social Security Administration.
Spouse Accidental Death Benefit
Additional life insurance death benefit paid if the death of a covered spouse is the result of an accident as defined by the policy.
Spouse Death Benefit
Death benefit amount for a spouse covered by a spouse rider on a life insurance policy.
Standard Risk
The risk classification assigned to individuals who meet the typical underwriting criteria and have no significant health or lifestyle factors that would increase their risk of mortality. Standard risk individuals are considered to have an average level of risk, and they qualify for life insurance coverage at standard premium rates.
Standard & Poor's (S&P)
A leading rating agency in the evaluation of the financial soundness of corporations and businesses.
Substandard Risk
The risk classification assigned to individuals who present higher-than-average risk due to specific health conditions, lifestyle factors, or other underwriting considerations. Substandard risk individuals may have medical conditions such as heart disease, diabetes, or a history of certain cancers, which can affect their life expectancy. As a result, they are deemed riskier to insure and may be subject to higher premium rates or face certain limitations on their coverage, such as reduced death benefits or exclusion of specific conditions.
Suicide Clause
A provision in a life insurance policy that limits or excludes the payment of the death benefit if the insured dies by suicide within a specified period after the policy's inception. The suicide clause is typically in effect during the policy's first two years, although the timeframe can vary depending on the insurance company and policy terms.
Supplementary Contract
An additional contract or agreement that is attached to the main life insurance policy to provide additional benefits or coverage. Supplementary contracts, also known as endorsements or riders, expand the scope of the policy by adding specific provisions or addressing certain risks. Examples of supplementary contracts include accidental death benefit riders, critical illness riders, or long-term care riders.
Surrender
The act of voluntarily terminating a life insurance policy before its maturity or expiration date. When a policy is surrendered, the policyholder forfeits the coverage and any potential future benefits associated with the policy. In return, the policyholder may receive the policy's cash surrender value, which is the accumulated cash value minus any applicable surrender charges or fees. Surrendering a policy can be an option for individuals who no longer need or can afford the coverage, or who wish to cash out the policy's accumulated value.
Surrender Fee/Charge
An amount deducted from the policy value when a person surrenders a life insurance policy or annuity.
Survivor Protection
A type of life insurance coverage that is designed to provide financial protection to the surviving family members or beneficiaries in the event of the insured's death. Survivor protection, often in the form of term life insurance, ensures that the surviving dependents or loved ones are financially supported and can maintain their lifestyle in the absence of the insured.
Survivorship Life Insurance
Also called 'second-to-die' or 'last-to-die' insurance. Survivorship life insurance covers the lives of two people, and pays benefits when the second person dies. It is often used by couples to fund estate tax liability.
T
Tax-Deferred
Postponement of the payment of taxes on a retirement or annuity plan until the income payments begin.
Taxpayer Identification Number (TIN)
A nine-digit taxpaying identification number assigned by the United States Internal Revenue Service to an individual or business.
Temporary Life Insurance
A short-term coverage solution used to bridge the period of time while waiting for permanent life insurance approval. Also known as a temporary insurance agreement (TIA).
Term
It refers to a specific period during which the policy provides coverage.
Term 10
Refers to a term life insurance policy with a coverage period of 10 years. The death benefit is payable if the insured passes away during the specified term.
Term Date
Also known as the policy expiration date, the term date is the specific date on which a term life insurance policy ends or expires. It marks the completion of the predetermined term for which the policy was originally purchased. Once the term date is reached, the coverage provided by the policy ceases, and the policyholder is no longer eligible for any death benefit. It is important to note that the policyholder may have the option to renew the policy, convert it to a permanent policy, or let it lapse depending on the terms and conditions of the policy.
Term Conversion Rider
A rider or optional provision that can be added to a term life insurance policy, allowing the policyholder to convert the policy to a permanent life insurance policy without undergoing additional medical underwriting.
Term Life Insurance
Life insurance that provides coverage for a specific time period. Policies are purchased for a predetermined duration, such as 10, 20, or 30 years. If the insured individual passes away within the term, the policy pays out a death benefit to the beneficiaries. However, once the term expires, the coverage ends, and there is no further benefit payable unless the policy is renewed or converted to a permanent life insurance policy.
Time Payment of Claims
Refers to the process and timeline within which an insurance company is obligated to pay out the death benefit or claims under a life insurance policy. The specific time frame for claim payments can vary depending on the terms of the policy and applicable regulations. Insurance companies generally strive to process and settle claims promptly and efficiently to provide the intended financial support to the beneficiaries.
U
Underwriting
The process used by insurance companies to determine how much life or other types of insurance a person can qualify for and at what price, based upon risk factors.
Universal Life Insurance
Life insurance that builds tax-deferred cash value either at a guaranteed minimum rate of return plus an additional return as credited by the insurance company, or based upon market performance. It also lets a person change the amount of their premium payments and/or coverage amount within certain limits, depending on certain circumstances or needs.
V
Variable Life Insurance
A type of permanent life insurance that combines a death benefit with an investment component. With variable life insurance, policyholders have the opportunity to allocate a portion of their premiums into various investment options, such as stocks, bonds, or mutual funds. The cash value of the policy fluctuates based on the performance of these investments. Policyholders can potentially earn higher returns on their cash value, but they also bear the risk of investment losses.
Variable Universal Life Insurance
Life insurance that builds tax-deferred cash value and includes features of both variable and universal life insurance coverage. The value of the policy depends upon the performance of the underlying investments selected. Like universal life, the premium and coverage options are flexible, within certain limits. A policyholder is subject to investment risk, including loss of principal.
Viatical settlement
A financial transaction in which a person with a terminal illness sells their life insurance policy to a third party, known as a viatical settlement provider. The viatical settlement provider pays the policyholder a lump sum, which is typically a percentage of the policy's face value, in exchange for becoming the policy's beneficiary. The provider assumes responsibility for paying the future premiums and receives the death benefit upon the insured's passing.
W
Waiting Period
Time periods allowing insurers to assess risk, verify information, and prevent fraud. Two main types exist: 1) Application waiting period. 2) Death benefit waiting periods, including contestability and suicide exclusion periods.
Waiver of Premium
An optional benefit on some insurance policies that either pays all or a portion of premiums due, or waives premiums if the insured becomes totally disabled.
Whole Life Insurance
Permanent life insurance that provides protection to age 100 as long as the fixed premiums are paid. Accumulates tax-deferred cash value that can be borrowed against through an interest-bearing loan or receive if the policy is surrendered.
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5-Year Renewable Term
A type of term life insurance policy that allows the policyholder to renew the coverage every five years without the need for additional underwriting or proof of insurability.
10-Pay Life Insurance
A whole life insurance policy where the policyholder pays premiums for a limited period of 10 years. After the premium payment period, the policy remains in force for the insured's lifetime.
1035 Exchange
A provision in the U.S. tax code that allows for the tax-free transfer of funds between certain types of insurance policies or annuities. It enables policyholders to exchange an existing policy or annuity for a new one without incurring immediate tax consequences.
20-Year Level Term
A type of term life insurance policy that provides coverage for a period of 20 years. The death benefit remains the same throughout the duration of the policy.
30-Year Term
A term life insurance policy that provides coverage for a period of 30 years. The death benefit is payable if the insured passes away within the specified term.
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