So you're thinking about getting life insurance. Congratulations! It's an important step that can provide peace of mind and financial security for you and your loved ones in case of an unexpected death.
But before you buy, it's important to understand the basics of life insurance. This glossary will familiarise you with some of the most common terms associated with life insurance policies. With this knowledge, you'll be able to find which policy is right for you.
Accelerated death benefit
A life insurance policy provision that allows the policyholder to receive a portion of their death benefit while alive, if the policyholder is diagnosed with a terminal illness.
Accrued Interest
Interest that has been earned but not yet paid.
Actuary
A professional who uses statistics and other data to assess risk and calculate premiums for life insurance policies.
Adjustable life insurance
A life insurance policy with an adjustable death benefit and/or premium.
Annual renewable term life insurance
A life insurance policy that covers the policyholder for one year at a time, with the option to renew for additional years. The death benefit and premium are set when the policy is first purchased, but the premium increases every year.
Administrative expense
The costs associated with the day-to-day operations of an insurance company, such as employee salaries, office rental, and computer systems.
Agent
An insurance salesperson who represents one or more life insurance companies.
Annuitant
The person on whose life an annuity is based.
Annuity
A life insurance product that provides periodic payments to the policyholder, either for a fixed period of time or for the policyholder's life.
Avocation
A hobby or activity that a life insurance policyholder participates, which may be considered risky. Examples include rock climbing or skydiving.
Beneficiary
The person or entity that will receive the death benefit from a life insurance policy.
Billing date
The day of the month that an insurance company sends out bills for life insurance premiums.
Blended life insurance
A life insurance policy that combines features of term life insurance and whole life insurance.
Bonus rate annuity
An annuity that pays a higher interest rate for a set period of time, after which the interest rate returns to the normal level.
Burial insurance
A life insurance policy with a death benefit that is typically used to cover funeral expenses.
Cash value
The portion of a life insurance policy's face value that is available to the policyholder while alive.
Cash surrender value
The portion of a life insurance policy's cash value that is available to the policyholder if the policy is surrendered, which means the policy is cancelled immediately.
Cash value life insurance
A life insurance policy that builds cash value over time.
Child protection rider
A life insurance policy rider that continues providing life insurance coverage for a child in the event of the death of the insured parent.
Children's life insurance
A life insurance policy that provides coverage for a child.
Claim
A request for payment of a life insurance benefit when the policyholder passes away.
Clause
A provision in a life insurance policy that outlines certain conditions, benefits, or exclusions.
Closed life insurance policy
A life insurance policy that is no longer being sold by the life insurance company.
Coinsurance
The portion of a loss that is covered by an insurance policy.
Concealment
The act of withholding information from an insurance company that could affect the company's decision to issue a life insurance policy.
Common carrier
A mode of transportation, such as an airplane, bus, or train, that is available to the general public.
Contestability period
The period of time after a life insurance policy is purchased during which the life insurance company can refuse to pay the death benefit if the policyholder dies.
Contingent owner
A person who is designated to receive the life insurance policy death benefit if the primary beneficiary passes away before the policyholder.
Conversion
The act of exchanging a life insurance policy for another life insurance policy, typically one with different features or benefits.
Convertible term life insurance
A type of life insurance that allows the policyholder to convert their policy to a permanent life insurance policy without having to undergo a medical exam.
Coverage
The amount of life insurance protection provided by a life insurance policy.
Credit life insurance
A life insurance policy that is used to pay off a debt, such as a loan, in the event of the policyholder's death.
Critical illness rider
A life insurance policy rider that provides a benefit if the policyholder is diagnosed with a critical illness, such as cancer or heart disease.
Dangerous occupation
An occupation that is considered to be high risk, such as a police officer or firefighter.
Declaration
The portion of a life insurance document that provides information about the policy, such as the policyholder's name and the death benefit amount.
Decreasing term life insurance
A life insurance policy with a death benefit that decreases over time.
Deed
A document that transfers ownership of property from one person to another.
Death benefit
The amount of money that will be paid out by a life insurance policy upon the death of the policyholder.
Default
The failure to make a required payment on a life insurance policy.
Disability income rider
A life insurance policy rider that provides a benefit if the policyholder becomes disabled and is unable to work.
Disability waiver of premium
A life insurance policy rider that waives the policy premium if the policyholder becomes disabled and is unable to work.
Dividend
A portion of a life insurance company's profits that is paid out to policyholders.
Durable power of attorney
A document that gives another person the authority to make financial decisions on behalf of the policyholder.
Effective date
The date on which a life insurance policy goes into effect.
Endorsement
A document that is added to a life insurance policy to make changes to the policy, such as changing the beneficiary.
Estate
The property and assets owned by a person.
Exclusion
A condition or circumstance that is not covered by a life insurance policy.
Expiration date
The date on which a life insurance policy will no longer be in effect.
Face value
The amount of money that will be paid out by a life insurance policy upon the death of the policyholder.
Family income benefit rider
A life insurance policy rider that provides a monthly income to the policyholder's family in the event of the policyholder's death.
Final expense life insurance
A life insurance policy that is used to pay for funeral and burial expenses.
Financial needs analysis
A analysis of a person's financial situation to determine how much life insurance they need.
Financial planning
The process of making decisions about how to best use one's financial resources to achieve short- and long-term goals.
Fixed life insurance policy
A life insurance policy with a death benefit that remains the same over the life of the policy.
Free-look period
The period of time after purchasing a life insurance policy during which the policyholder can cancel the policy and receive a refund of their premium paid.
Grace period
A period of time after the life insurance policy's premium is due but before coverage is terminated.
Graded death benefit
A life insurance policy with a death benefit that increases over time.
Group life insurance
A life insurance policy that is offered through an employer or other organization.
Guaranteed insurability rider
A life insurance policy rider that allows the policyholder to purchase additional life insurance coverage at specified times, without having to undergo a medical exam.
Guaranteed issue life insurance
A life insurance policy that does not require a medical exam.
Guaranteed universal life insurance
A life insurance policy that provides coverage for the life of the policyholder, with a guaranteed death benefit and premium payments.
Hazard
A condition or activity that increases the risk of death, such as smoking or skydiving.
Incontestability clause
A provision in a life insurance policy that prevents the life insurance company from denying coverage based on the policyholder's health or other factors.
Insurable interest
A financial interest in another person's life that would result in a financial loss if that person died.
Insurance policy
A contract between an insurance company and policyholder that provides financial protection in the event of the policyholder's death.
Insured
The person who is covered by a life insurance policy.
Insurer
The life insurance company that issues a life insurance policy.
Irrevocable life insurance trust
A trust that owns a life insurance policy and is used to pay estate taxes.
Intestate
Having died without a will.
Irrevocable beneficiary
A life insurance policy beneficiary who cannot be changed without their consent.
Joint life insurance policy
A life insurance policy that covers two people.
Joint first-to-die
A life insurance policy that pays the death benefit when the first policyholders dies.
Joint last-to-die
A life insurance policy that pays the death benefit when both policyholders die.
Key person life insurance
A life insurance policy that is taken out on a key employee of a company.
Lapse
The termination of a life insurance policy due to non-payment of premiums.
Level term life insurance
A life insurance policy with level premiums and a death benefit that remains the same over the life of the policy.
Life expectancy
The average number of years a person is expected to live.
Life insurance agent
A person who sells life insurance policies.
Life insurance company
A company that issues life insurance policies.
Life insurance policy
A contract between an insurance company and policyholder that provides financial protection in the event of the policyholder's death.
Life insurance classification
A system used by life insurance companies to group policyholders based on their risk factors.
Living benefits rider
A life insurance policy rider that provides for the payment of the death benefit while the policyholder is still alive.
Long-term care rider
A life insurance policy rider that provides for the payment of long-term care expenses.
Material misrepresentation
A false statement made by the policyholder on a life insurance application that is material to the risk being assumed by the life insurance company. An example is be a smoker that tells the insurance company they are a non-smoker.
Maturity
The end of the life insurance policy term.
Medical report
A report completed by a doctor that contains information about the policyholder's health.
Modal premium
The most common amount paid for a life insurance policy.
Mortality table
A table that shows the death rates of people in different age groups.
Mortgage life insurance
A life insurance policy that pays off the policyholder's mortgage in the event of their death.
No medical life insurance
A life insurance policy that does not require a medical exam.
Nonforfeiture options
Options that are available to a life insurance policyholder who stops paying premiums.
Non-smoker rates
Lower life insurance rates that are available to policyholders who do not smoke.
Occupational hazard
A job-related condition that increases the risk of death, such as working with hazardous materials.
Open enrolment
A life insurance company's enrolment period during which new policyholders can sign up for life insurance coverage. Employees who already have coverage can make changes to their policy.
Owner
The person who holds the life insurance policy.
Paid-up life insurance
A life insurance policy with no more premiums due.
Participating life insurance policy
A life insurance policy that pays dividends to the policyholder.
Permanent life insurance
A life insurance policy that remains in force for the policyholder's entire life.
Personal life insurance
A life insurance policy that is taken out on an individual.
Physical examination
A medical exam that is required by some life insurance companies.
Policy illustration
A life insurance company's estimate of what a life insurance policy will pay in benefits.
Policy loan
A loan that can be taken out against a life insurance policy's cash value.
Policy reserves
The funds set aside by a life insurance company to pay future claims and expenses.
Preferred rates
Lower life insurance rates that are available to policyholders who are in good health.
Premium
The amount of money paid to keep a life insurance policy in force.
Primary beneficiary
The person or persons named in a life insurance policy to receive the death benefit.
Proof of insurability
Evidence of the policyholder's good health, such as a medical report or physical examination.
Quote
An estimate of life insurance premiums.
Rated life insurance policy
A life insurance policy with higher premiums because the policyholder is considered a higher risk.
Rescission right
The policyholder's right to cancel a life insurance policy and get their premiums back within a certain time period after signing the contract. This period is typically two weeks.
Reduced paid-up life insurance
A life insurance policy with reduced benefits that is still in force after the policyholder stops paying premiums.
Reinstatement
The process of restarting a life insurance policy that has lapsed.
Renewable term life insurance
A life insurance policy that can be renewed for additional terms, without evidence of insurability.
Return of premium rider
A life insurance policy rider that refunds the policyholder's premiums if they outlive the term of the policy.
Revocable beneficiary
A life insurance policy beneficiary who can be changed by the policyholder.
Risk class
A group of people with similar life insurance risks.
Rider
An add-on to a life insurance policy that provides additional coverage or benefits.
Self-employed life insurance
A life insurance policy for self-employed individuals.
Settlement options
The options that are available to a life insurance policy beneficiary for receiving the death benefit.
Smoker
A person who uses tobacco products, such as cigarettes, cigars, or pipe tobacco.
Standard life insurance rates
The rates that are charged for life insurance coverage without any special considerations.
Suicide clause
A life insurance policy provision that voids the policy if the policyholder dies by suicide within a certain time period, typically two years. Premiums are paid back to the beneficiary during the initial two year period.
Simplified issue life insurance
A life insurance policy that does not require a medical exam.
Single premium life insurance
A life insurance policy with one premium payment.
Smoker rates
Higher life insurance rates that are available to policyholders who smoke.
Standard risk
A life insurance policyholder who is considered to be a average risk.
Substandard risk
A life insurance policyholder who is considered to be a high-risk.
Surrender charges
A fee charged by some life insurance companies if a policy is cancelled.
Sum insured
The amount of life insurance coverage.
Survivorship life insurance
A life insurance policy that pays benefits after the death of both policyholders.
Term
The length of time that a life insurance policy is in force.
Term conversion rider
A life insurance policy rider that allows the policyholder to convert their term life insurance policy to a permanent life insurance policy.
Term life insurance
A type of life insurance that remains in force for a specific period of time.
Term to 100 life insurance
A type of life insurance that remains in force until the policyholder reaches 100 years old.
Third-party ownership
When a life insurance policy is owned by someone other than the policyholder or the beneficiary.
Traditional life insurance
Another name for whole life insurance and other types of permanent life insurance.
Underwriter
The life insurance company employee who reviews a life insurance application and decides whether to approve or deny coverage.
Underwriting
The process of reviewing a life insurance application and deciding whether to approve or deny coverage.
Universal life insurance
A type of permanent life insurance that has flexible premiums and death benefits.
Variable life insurance
A type of permanent life insurance that has investment components.
Waiting period
The amount of time that must pass before a life insurance policy pays benefits.
Waiver of premium rider
A life insurance policy rider that waives the policy premiums if the policyholder becomes disabled.
Whole life insurance
A type of permanent life insurance that remains in force for the policyholder's whole life.
Will
A legal document that states how a person's assets will be distributed after their death.
Yearly renewable term life insurance
A type of life insurance that allows the policyholder to renew the policy for a new term each year, without having to undergo a medical exam. Same as annual renewable term.
Zero coupon life insurance
A life insurance policy that does not have regularly scheduled premium payments. The policyholder pays one lump sum premium payment. The death benefit is paid out at the policy's maturity date.
Conclusion
We hope that this life insurance terms glossary was helpful in demystifying some of the language used when discussing life insurance.
If you have any questions about a specific term, or want more information on a particular policy, please don’t hesitate to reach out to us. Our team is happy to help and can provide you with all the information you need to make an informed decision about your coverage.