Life Insurance Terms
Accelerated Benefits Rider
In a life insurance policy, a benefit that pays a portion of the death benefit to an insured while living to offset the costs of care for a catastrophic illness or injury. Sometimes referred to as a Living Benefits Rider.
Accidental Death Benefit
In a life insurance policy, a death benefit payable on top of the policy’s face amount when death is caused by an accident.
An interest rate credited to the cash value of certain types of life insurance policies that adjusts according to a market index.
A person licensed by the state to sell insurance either as an independent agent who represents multiple insurance companies or as a direct agent representing one company. In either case, an agent is paid a percentage of premiums paid as a commission.
Annually Renewable Term
A type of life insurance policy that provides a death benefit with no cash value and is renewed each year with no evidence of insurability. The premium is adjusted upward each year based on the insured attained age.
The individual or entity designated by the policyholder to receive the death benefit proceeds when the insured dies. A policyholder can name several beneficiaries which are often designated as primary (first to receive benefits) and contingent (receives benefits if primary beneficiary is already deceased).
Best’s Insurance Report
An annual report compiled by A.M. Best, Inc rating all insurers based on their current and projected financial strength. A.M. Best applies a letter grade signifying the company’s ability to pay its obligations and withstand poor economic conditions.
A person licensed by the state to sell insurance. Because they have selling agreements with multiple companies, they can work on behalf of the client to search the market for the most suitable insurance products for their situation.
The savings component of life insurance in which a portion of each premium payment is applied. In life insurance policies, cash value is allowed to accumulate tax free. Over time, the cash value growth will have the effect of lowering the amount at risk for the insurer because, at the death of the insured, the death benefit is paid to the beneficiary but the cash value goes to the insured. Generally, cash values can be accessed by loans for any purpose while the insured is living, but any loans outstanding at the death of the insured will reduce the payable death benefit.
An acknowledgement by the life insurer of a premium payment made by an applicant that also provides interim coverage while the application is being processed in underwriting. A conditional receipt can be revoked should underwriters uncover any medical conditions that might change the rating of the policy.
A provision offered in certain life insurance policies that allow a policyholder to convert an existing policy into a different type of policy without evidence of insurability. The most common type of conversion is from a term policy into a permanent policy in which the new premium is based on the insured’s attained age at the time of conversion.
The face amount of the policy payable to the beneficiary upon the death of the insured. The death benefit may be reduced based on any outstanding policy loans or unpaid premiums.
Decreasing Term Insurance
A type of term insurance in which the death benefit is scheduled to gradually decrease over the term of the policy. The insured pays a level premium because the cost of insurance decreases each year. Decreasing term insurance is often used to protect a mortgage.
A cash payment made to policyholders from the profits of a mutual life insurance company. The profit comes from excess premiums collected to cover the current year’s insurance costs. Dividends can be received as cash, used to pay a portion of the premium or applied to the policy to purchase paid up additions of insurance.
Level Term Insurance
A type of term life insurance in which the death benefit and payable premiums are fixed and level over the term of the policy. Level term insurance policies are typically issued for terms of 10, 15, 20, 25, or 30 years. Premiums are higher for longer term policies.
An examination required of applicants for life insurance for medical underwriting purposes. Depending on the amount of coverage applied for, a medical examination could include blood work, diagnostics, or even a complete physical examination. Examinations are typically conducted by a paramedical examiner in the home or office of the applicant.
Paid-Up Additional Insurance
An additional amount of fully paid up insurance purchased with policy dividends or additional premium payments. Paid up additional insurance increases both the face amount and the cash value of the policy.
A contract issued by an insurance company to a policyholder specifying the scope of the coverage provided as well as any limitations in the policy. Any endorsements or riders added to the policy become a part of the contract.
The status given to an individual applying for life insurance who meets the insurers criteria for more favorable premium pricing based on the person’s health condition, medical history, life style habits, and occupation.
The cost of insurance coverage charged to the policyholder and paid to the insurer at the time of issue and in periodic payments thereafter in order to keep the policy in force.
An optional provision of a life insurance policy added at the request of the policyholder for an additional cost that provides expanded coverage or an additional benefit.
Section 1035 Exchange
A provision of the Internal Revenue Code that allows s policyholder to exchange one life insurance contract for another life insurance contract or annuity contract without triggering a tax consequence.
In a variable life insurance policy, an investment account that is maintained separately from the general account of the insurer. Policyholders can invest in various types of investments among several separate accounts available within the policy; however, because they are separate from the general account, the policyholder assumes any risk associated with the investments.
The status given to a person applying for life insurance who doesn’t qualify for the most favorable premium pricing based on the insurer’s underwriting criteria.
The status given to a person applying for life insurance who, based on the insurer’s underwriting criteria has the indications of a higher risk because of medical condition, family history or a higher risk life style or occupation.
Term Life Insurance (Term Insurance)
A death benefit-only life insurance policy that provides a specific amount of coverage for a specific number of years (term), after which the policy will expire.
The process of evaluating the risks and assessing the costs of coverage on an applicant for life insurance. Underwriters consider a number of factors in their assessment including current medical experience as well as the company’s own experience with certain classes of insured.
Universal Life Insurance
A form of life insurance that combines lower cost insurance with a separate cash value component that allows for greater flexibility in premium payments and the potential to earn higher yields. With a universal life insurance policy, the policyholder assumes the risk of higher insurance costs or lower yields that may require additional premium payments.
Variable Life Insurance
A life insurance contract with separate investment accounts that allows policyholders to choose from among different types of investments for their cash value. The policyholder assumes any of the risks associated with the investments; however, with most variable insurance policies, the insurer will guarantee the initial death benefit to be paid regardless of the performance of the investment accounts.
Variable Universal Life Insurance
A life insurance policy that combines the features of a variable life insurance policy with a universal life insurance policy allowing for greater flexibility of premium payments and the potential for higher cash value growth. The policyholder assumes the risk of poor investment performance which could require additional premium payments in order to keep the policy in force.
Waiver of Premium
In a life insurance policy, an additional-cost option selected by the policyholder that will waive all or a portion of the premium payment during a period of disability.
Whole Life Insurance
A permanent form of life insurance with a guaranteed, fixed death benefit, a guaranteed, fixed premium, and a guaranteed cash value. Whole life insurance never expires as long as the premiums are paid.
Note: This is not an all-inclusive list of insurance terms/definitions and not all terms listed apply to all insurance products.
National Association of Insurance Commissioners, Center for Policy Research website; NAIC.org. Retrieved 8.5.2014
Internal Revenue Service website. IRS.gov. Retrieved 8.1.2014