Life Insurance Glossary
67 terms defined. An authoritative reference for Life Insurance.
A
Accelerated Death Benefit
A provision allowing access to a portion of the death benefit while still alive if diagnosed with a terminal illness (typically 12-24 months to live). Many policies include this at no extra cost. The accessed amount reduces the final death benefit paid to beneficiaries.
Accidental Death and Dismemberment (AD&D)
A type of insurance that pays a benefit if the insured dies in an accident or loses a limb, sight, hearing, or other specified function due to an accident. AD&D is often sold as a standalone policy or as a rider on a life insurance policy. It does not cover death from illness, so it should supplement — not replace — traditional life insurance.
Accidental Death Benefit Rider
An optional policy add-on that pays an additional death benefit — often double the face amount — if the insured dies as the result of a covered accident. Sometimes called a double indemnity rider. It does not cover death from illness or natural causes, only accidents that meet the policy's definition.
Actuarial Table
A statistical chart used by insurance companies to estimate life expectancy and death probabilities based on age, sex, and sometimes health factors. Actuarial tables — also called life tables or mortality tables — are the foundation for calculating life insurance premiums. Modern tables are regularly updated by the Society of Actuaries to reflect improvements in population health and longevity.
Attending Physician Statement (APS)
A detailed medical report requested by an insurer directly from a physician who has treated the applicant. An APS provides a comprehensive picture of the applicant's medical history and is typically ordered when the application or medical exam reveals a condition that requires further clarification. Waiting for an APS is a common reason for extended underwriting timelines.
B
Beneficiary
The person or entity designated to receive the death benefit. Primary beneficiaries receive first; contingent beneficiaries receive if primary is unable. Can be individuals, trusts, or charities. Review and update after marriage, divorce, birth, or death of a beneficiary.
Beneficiary Designation
The legal assignment naming who will receive a life insurance death benefit. Beneficiary designations are made on a form provided by the insurer and supersede instructions in a will. Keeping designations up to date after major life events — marriage, divorce, birth, death — is critical, as an outdated designation can result in benefits going to an ex-spouse or other unintended recipient.
Buy-Sell Agreement
A legally binding contract between business partners that outlines what happens to a business owner's interest when they die, become disabled, or leave the company. Life insurance is commonly used to fund buy-sell agreements — when one partner dies, the insurance proceeds allow the surviving partner(s) to buy out the deceased's share from their estate.
C
Cash Value
A savings component in permanent life insurance policies that accumulates over time. Can be borrowed against or withdrawn (reducing the death benefit). Grows tax-deferred. Surrender charges apply in early years. Building meaningful cash value typically takes 10-15 years.
Child Rider
An add-on to a parent's life insurance policy that extends a small amount of term life coverage to the policyholder's eligible children. It is typically inexpensive and covers all current and future children in the family under one rider. The coverage usually ends when the child reaches a certain age (18–25) and may be convertible to a permanent policy at that time without a medical exam.
Contestability Period
The first two years of a policy during which the insurer can investigate and deny claims for material misrepresentation on the application. After two years, claims are generally paid regardless of application accuracy (except in cases of outright fraud). Always be truthful on applications.
Contingent Beneficiary
A secondary beneficiary who receives the death benefit only if all primary beneficiaries have died before or simultaneously with the insured, or are otherwise unable to collect. Also called a secondary beneficiary.
Conversion Privilege
The right to convert a term policy to a permanent policy without a new medical exam. Valuable if your health deteriorates during the term period. Conversion options vary by insurer — some allow conversion to any permanent product, others limit to specific policies. Check conversion terms before buying term.
D
Death Benefit
The amount paid to beneficiaries when the insured person dies. Paid as a tax-free lump sum in most cases. Can be level (stays the same) or decreasing (declines over the policy term). The core purpose of life insurance — everything else is secondary.
DIME Method
A life insurance needs calculation framework that stands for Debt, Income, Mortgage, and Education. You add together: all outstanding debts, the income your family would need for a set number of years, your remaining mortgage balance, and estimated future education costs for your children. The total provides a baseline estimate of how much life insurance coverage to buy.
E
F
Face Value (Face Amount)
The stated death benefit amount of a life insurance policy — the amount the insurer agrees to pay upon death. A "$500,000 term policy" has a face value of $500,000. Actual payout may differ due to loans against the policy, riders, or outstanding premiums.
Final Expense Insurance
A small whole life insurance policy, typically $5,000–$25,000, designed to cover end-of-life costs such as funeral expenses, burial, and outstanding debts. Also called burial insurance or funeral insurance. These policies usually require no medical exam and are available to seniors up to age 85.
Free Look Period
A mandatory period — usually 10 to 30 days after policy delivery — during which the policyholder can cancel a new life insurance policy and receive a full premium refund for any reason. The length of the free look period is set by state law and the specific policy contract.
G
Grace Period
A period — typically 30 to 31 days after a premium due date — during which a life insurance policy remains active even if the premium has not been paid. If the insured dies during the grace period, the death benefit is still paid, minus the overdue premium. After the grace period ends, the policy lapses.
Group Life Insurance
Life insurance coverage offered to a group of people under a single master policy, most commonly provided by employers to their employees. Group life typically requires no individual underwriting, premiums are low or fully employer-paid, and coverage is usually one to two times the employee's annual salary. Coverage ends when employment ends.
Guaranteed Insurability Rider
A rider that allows the policyholder to purchase additional life insurance coverage at specified future dates or life events (marriage, birth of a child) without providing evidence of insurability. This protects the ability to increase coverage regardless of future health changes and is most valuable for young, healthy policyholders who anticipate growing financial obligations.
Guaranteed Issue Life Insurance
A life insurance policy that accepts all applicants within a specified age range (typically 50–80) with no medical exam and no health questions. In exchange for guaranteed acceptance, premiums are higher, coverage is limited (usually $5,000–$25,000), and most policies include a two-year graded benefit period before full coverage applies.
H
I
Incontestability Clause
A provision in life insurance policies stating that after the policy has been in force for two years, the insurer cannot contest or void the policy based on misrepresentations in the application — except in cases of outright fraud. This clause protects beneficiaries from claim denials due to honest mistakes or omissions on the original application.
Increasing Death Benefit
A policy feature — common in universal life insurance — where the death benefit grows over time by a fixed percentage or by the accumulated cash value. An increasing death benefit can help counteract the effects of inflation on the policy's purchasing power. It typically results in higher premiums or faster cash value consumption than a level death benefit option.
Insurability
A person's ability to qualify for life insurance coverage based on their health, age, occupation, lifestyle, and other risk factors. Good insurability means you can obtain coverage at favorable rates. Poor insurability — due to health conditions, risky hobbies, or other factors — may result in higher premiums, coverage limitations, or denial. Insurability can change over time, which is why buying coverage while young and healthy is generally advisable.
Insurance Rider
An optional add-on to a base policy that provides additional coverage or benefits for an extra premium. Common riders: waiver of premium (covers payments if disabled), accelerated death benefit (access funds if terminally ill), child rider, and accidental death benefit.
Insured
The person whose life is covered by the insurance policy. If the insured dies while the policy is in force, the insurer pays the death benefit to the named beneficiary. The insured and the policyholder are often the same person but can be different individuals.
Irrevocable Beneficiary
A beneficiary designation that cannot be changed by the policyholder without the beneficiary's written consent. Irrevocable designations are common in divorce settlements and business arrangements, providing the beneficiary with a legally protected interest in the policy.
Irrevocable Life Insurance Trust (ILIT)
A trust that owns a life insurance policy outside of the insured's taxable estate. Because the policy is owned by the trust rather than the insured, the death benefit is excluded from the insured's estate for federal estate tax purposes. ILITs are commonly used in estate planning by high-net-worth individuals to pass large death benefits to heirs free of estate tax.
J
K
L
Lapse
The termination of a life insurance policy due to non-payment of premiums after the grace period expires. When a policy lapses, coverage ends and no death benefit will be paid. Some permanent policies can auto-pay premiums from accumulated cash value to prevent lapse, and most insurers allow reinstatement within a limited time window.
Level Premium
A premium structure in which the amount paid remains constant throughout the life of the policy. Most term life and whole life insurance policies use level premiums. Because premiums are averaged over the policy term, they are higher than the mortality cost in early years (building reserves) and lower than the actual risk cost in later years when the insured is older.
Life Settlement
The sale of an existing life insurance policy to a third-party investor for a lump sum greater than the surrender value but less than the death benefit. The buyer takes over premium payments and collects the death benefit when the insured dies. Life settlements are most common for seniors over 65 with policies worth $100,000 or more who no longer need or can afford coverage.
Long-Term Care Rider
A life insurance add-on that allows the policyholder to access a portion of the death benefit to pay for qualified long-term care expenses, such as nursing home stays, assisted living, or in-home care. It is an alternative to a standalone long-term care insurance policy and provides a use for the death benefit while the insured is still alive if care is needed.
M
MIB (Medical Information Bureau)
A cooperative data exchange used by life, health, and disability insurers to share coded information about prior insurance applications. When you apply for life insurance, the insurer may query MIB to check for discrepancies between your application and information you provided to other insurers in the past. MIB helps prevent fraud and misrepresentation without sharing full medical records.
Mortality and Expense Risk Charge (M&E)
A fee charged inside variable life and variable annuity products that compensates the insurance company for mortality risk (the risk of paying out more in death benefits than anticipated) and expense risk (the risk that administrative costs exceed projections). The M&E charge is typically expressed as an annual percentage of the account value, usually 0.5%–1.5%.
Mortality Rate
A statistical measure of the frequency of death within a given population over a defined time period, expressed as deaths per 1,000 or 100,000 people. Life insurers use mortality rates derived from actuarial tables to calculate how likely it is that policyholders of various ages and health profiles will die during the policy period, which directly determines premium pricing.
N
Net Amount at Risk
The difference between a policy's death benefit and its current cash value. This is the portion of the death benefit that the insurer is actually at risk of paying from its own funds. As cash value grows in a permanent policy, the net amount at risk decreases over time.
Non-Participating Policy
A life insurance policy that does not pay dividends to policyholders. The premium is fixed at issue and does not change based on the insurer's financial performance. Non-participating policies are common with stock (shareholder-owned) insurance companies. They are simpler but do not offer the potential dividend upside of participating policies.
P
Paid-Up Additions
Small amounts of additional whole life insurance purchased with policy dividends in a participating whole life policy. Paid-up additions increase both the death benefit and the cash value of the policy and are themselves paid-up, meaning no further premiums are required for the additional coverage.
Paramedical Exam
A brief health examination conducted by a paramedical professional (not a physician) as part of the life insurance underwriting process. The exam typically includes a blood pressure reading, height and weight measurement, blood draw, and urine sample. The results are sent directly to the insurer's underwriting team. The exam is usually free to the applicant and can be scheduled at your home or office.
Participating Policy
A life insurance policy that pays dividends to the policyholder from the insurer's surplus earnings. Dividends are not guaranteed but reflect the insurer's actual experience with claims, investment returns, and expenses. Policyholders can use dividends to reduce premiums, purchase paid-up additions, accumulate interest, or receive as cash. Participating policies are most common with mutual (policyholder-owned) life insurance companies.
Per Capita
A beneficiary distribution method meaning "by the head" in Latin. Under per capita, the death benefit is divided equally among all surviving beneficiaries. If a named beneficiary predeceases the insured, their share is redistributed among the remaining survivors rather than passing to that beneficiary's children — the opposite of per stirpes.
Per Stirpes
A Latin legal term meaning "by branch" that describes how a death benefit is distributed if a primary beneficiary predeceases the insured. Under per stirpes distribution, that beneficiary's share passes down to their children rather than being redistributed among surviving beneficiaries. For example, if you leave 50% to your daughter and she predeceases you, her 50% goes to her children.
Policy Loan
A loan taken against the cash value of a permanent life insurance policy. Policy loans do not require credit checks or repayment schedules, but unpaid interest accrues and, if the total loan plus interest exceeds the cash value, the policy can lapse. Any outstanding loan balance is deducted from the death benefit at the time of claim.
Policyholder
The person or entity who owns the life insurance policy and is responsible for paying the premiums. The policyholder and the insured are often the same person, but not always — for example, a business may own a key person policy on an employee.
Preferred Plus
The best risk classification an insurer assigns, reserved for applicants in excellent health with ideal weight, no tobacco use, no significant family history of early death, clean driving record, and low-risk occupation. Preferred Plus policyholders receive the lowest available premiums. Only a small percentage of applicants qualify for this designation.
Premium
The amount you pay for life insurance coverage, typically monthly or annually. Determined by age, health, coverage amount, policy type, and term length. Term premiums are level (fixed) for the entire term. Whole life premiums are level for life. Universal life premiums are flexible.
Probate
The legal process by which a deceased person's estate is administered and distributed under court supervision. Life insurance proceeds paid directly to a named beneficiary typically bypass probate entirely — one of the key advantages of life insurance as a wealth transfer tool. Proceeds that are paid to the policyholder's estate (due to no named beneficiary) are subject to probate, which can be time-consuming and costly.
R
Reinstatement
The process of restoring a lapsed life insurance policy to active status. Most insurers allow reinstatement within two to five years of lapse if the policyholder pays all overdue premiums with interest and provides evidence of continued insurability (typically an updated health questionnaire or medical exam). Reinstated policies usually retain the original issue date, which preserves the incontestability clock.
Return of Premium Rider
A term life insurance add-on that refunds all or most of the premiums paid if you outlive the policy term. It significantly increases the monthly premium but provides a built-in savings component. If you die during the term, the standard death benefit is paid, not a refund. Some policyholders view it as a forced savings plan with life insurance included.
Risk Class
The rating category assigned during underwriting that determines your premium. Common classes: Preferred Plus (best health, lowest rates), Preferred, Standard Plus, Standard, and Substandard (rated with health conditions). The difference between Preferred and Standard can be 30-50% in premium cost.
S
Simplified Issue Life Insurance
A life insurance policy that uses a short health questionnaire instead of a full medical exam for approval. It falls between no-medical-exam policies (faster, less scrutiny) and fully underwritten policies (slower, more thorough). Premiums are generally higher than fully underwritten coverage but lower than guaranteed issue.
Suicide Clause
A standard life insurance provision that excludes coverage if the insured dies by suicide within the first one to two years of the policy. After the exclusion period, most policies cover suicide the same as any other cause of death. The clause is intended to prevent individuals from buying coverage specifically to leave a benefit to their family.
Surrender Value
The amount of money a policyholder receives if they cancel a permanent life insurance policy and surrender it to the insurer. Surrender value equals the accumulated cash value minus any surrender charges (fees that decrease over time and typically disappear after 10–15 years). Surrendering a policy terminates coverage permanently.
T
Table Rating
A system used by life insurance underwriters to classify applicants with above-average health risk. Standard health = Table 0 or "Standard." Each table above Standard (Table B, C, D... or Table 2, 4, 6...) adds an additional percentage to the base premium, typically 25% per table level. A Table 4 rating means you pay roughly 100% more than a standard-rate policyholder.
Term Life Insurance
Coverage for a fixed period (10, 20, or 30 years). If you die during the term, beneficiaries receive the death benefit. If you outlive the term, coverage ends with no payout. The most affordable type of life insurance — 5-15x cheaper than whole life for the same death benefit.
Term Rider
An add-on to a permanent life insurance policy that provides additional temporary death benefit coverage for a set number of years. Term riders are used to boost the total death benefit during the years when income replacement needs are highest — such as while raising children or paying off a mortgage — without permanently increasing the base policy's cost.
U
Underwriting
The process insurers use to evaluate your risk and determine your premium. Factors assessed: age, health history, family medical history, smoking status, occupation, hobbies, and driving record. Full underwriting includes a medical exam; simplified and guaranteed issue skip the exam at higher premiums.
Universal Life Insurance
Permanent coverage with flexible premiums and adjustable death benefit. Cash value earns interest based on market rates or an index (Indexed Universal Life). More adaptable than whole life but requires monitoring to ensure the policy stays funded. Underfunding can cause the policy to lapse.
V
Variable Life Insurance
A permanent life insurance policy in which the cash value is invested in sub-accounts similar to mutual funds. The cash value and, in some policies, the death benefit can fluctuate based on market performance. Variable life policies offer growth potential but carry investment risk, and they are regulated as securities.
Viatical Settlement
Similar to a life settlement, a viatical settlement involves selling a life insurance policy to a third party when the insured has a terminal or chronic illness with a limited life expectancy. The seller receives a lump sum to pay for medical care and living expenses. Proceeds from a viatical settlement may be tax-free for terminally ill individuals under IRS rules.
W
Waiver of Premium Rider
A rider that keeps your policy active and pays your premiums if you become totally disabled and can't work. Typically activates after a 6-month waiting period. One of the most recommended riders because disability is more likely than death during working years.
Whole Life Insurance
Permanent coverage that lasts your entire life with guaranteed death benefit, fixed premiums, and cash value accumulation. Significantly more expensive than term life. The cash value grows at a guaranteed rate (typically 2-4%) and can be borrowed against. Best for estate planning, not investment.