Confused? Our glossary of terms can help.
Life Insurance Glossary of Terms
Life Insurance Glossary of Terms
Below are important life insurance terms and definitions to help you understand life insurance and how it works.
By becoming more familiar with some of these terms you’ll be better able to make an informed decision when
deciding to purchase life insurance.
A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics.
An individual who sells and services insurance policies in either of two classifications:
An independent agent represents multiple insurance companies and services clients by
searching the market for the most advantageous price for the most coverage. The agent's commission is a percentage
of each premium paid.
A career agent represents only one company and sells only its policies. This agent is
paid on a commission basis in much the same manner as the independent agent.
Insurance company assets refer to "all the available properties of every kind or possession of an insurance company that might be used
to pay its debts." There are three classifications of assets: invested assets, all other assets, and total admitted
assets. Invested assets refer to things such as bonds, stocks, cash and income-producing real estate.
All other assets refer to nonincome producing possessions such as the building the company occupies,
office furniture, and debts the company is owed, usually in the form of deferred and unpaid premiums. Total admitted assets
refer to everything a company owns. "All other" plus "invested assets" equals total admitted assets.
By law, some states don't permit insurance companies to claim certain goods and possessions, such as a company airplane,
so these are classified in the "all other assets" category, declaring them "nonadmissable."
- Attained Age
An insured's age at a particular time. For example, many term life insurance policies allow an insured to convert
to permanent insurance without a physical examination at the insured's then attained age.
Upon conversion, the premium usually rises to reflect the insured's attained age and diminished life expectancy.
- The person or party named by the owner of a life insurance policy to receive the policy benefit.
- An insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.
Independent insurance salesperson who represents particular insurers but also might function as a broker by searching
the entire insurance market to place an applicant's coverage to maximize protection and minimize cost.
This person may be licensed as an agent and a broker.
Equity of shareholders of a stock insurance company. The company's capital and surplus are measured by the
difference between its assets and its liabilities. This "cushion" protects the interests of the company's
policyowners as well as providing a source for dividends to shareholders and investments in new ventures.
- Cash Value
Some life insurance policies, usually permanent types like whole life, universal life or variable universal life
insurance, can accumulate money in a cash value account. In addition to paying for insurance coverage,
a portion of your premium goes toward a cash value account that grows tax-deferred over time.
- A formal request for payment related to an event or situation that is covered under an in-force insurance policy.
Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage
varies widely depending on coverage, the insurer and the marketing methods.
- Contingent Beneficiary
The party designated to receive proceeds of a life insurance policy following the insured’s death if the primary
beneficiary predeceased the insured.
- Convertible Term Insurance Policy
A term life insurance policy that gives the policy owner the right to convert (or exchange) the policy to a permanent plan
- The scope of protection provided under an insurance policy. In life insurance, living and death benefits are listed.
Term life insurance coverage that can be converted into permanent insurance regardless of an insured's
physical condition and without a medical examination. The individual cannot be denied coverage or charged an
additional premium on the permanent plan for any health problems.
- Death Benefit
- The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.
- Evidence of Insurability
- Proof that a person is an insurable risk.
- Face Amount
- The amount of the death benefit payable under a life insurance policy.
- Free Look Provision
An individual life insurance and annuity provision that gives the policy owner a stated time, usually 30 days after
the policy is delivered, in which to cancel the policy and receive a full refund on the initial premium payment.
- Grace Period
The length of time (usually 31 days for term policies) after a premium is due and unpaid during which the policy, including all riders,
remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time.
Banner and William Penn’s Universal Life policies, typically provide for coverage to remain in force for at least 30 days
following the date cash value becomes insufficient to support the payment of monthly insurance costs.
- Incontestability Provision
A life insurance provision that limits the time within which the insurer has the right to void the contract
on the ground of material misrepresentation in the application for the policy.
- Irrevocable Beneficiary
A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s
lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the
- Insurable Interest
The interest an insurance policy beneficiary has in the risk that is insured. The beneficiary of a life insurance policy
has an insurable interest in the insured when the beneficiary is likely to benefit if the insured continues
to live and is likely to suffer some loss or detriment if the insured dies.
- Material Misrepresentation
- A misrepresentation that would effect the insurance company’s evaluation of a proposed insured.
- Mortality Tables
Charts that show the death rates of a particular group of lives at certain ages, derived from statistics that count deaths in a
population by age compared to those still alive at that age.
- Permanent Life Insurance
- Life insurance that provides coverage throughout the insured’s lifetime and may also provide a cash value.
- The written contract of insurance, or in which the rights and duties of the insurer and the insured are set out.
- Policy Anniversary
- As a general rule, the date on which coverage under an insurance policy became effective.
- Policy Rider
An amendment to an insurance policy that becomes part of the insurance contract and either expands or
limits the benefits payable under the contract.
- The price of insurance protection for a specified risk for a specified period of time.
- The automatic re-establishment of in-force status effected by the payment of another premium.
- Risk Class
Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical
underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.
- Section 1035 Exchange
This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity
policy without creating a taxable event.
- Section 7702
Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify
as a life insurance contract, which has tax advantages.
- Surrender Charge
Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value.
This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent
- Term Life Insurance
Life insurance that provides protection for a specified period of time. Common policy periods are
10, 15, 20 and 30 years. Term policies usually do not build up any of the nonforfeiture values associated with
permanent life policies.
- The individual trained in evaluating risks and determining rates and coverages for them.
The process of selecting risks for insurance and classifying them according to their degrees
of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks
that do not qualify.
- Universal Life Insurance
A life insurance policy that allows flexibility of premium payments
which may affect the benefit to be paid and/or the length of time coverage is in force.
- Variable Life Insurance
A form of life insurance whose cash value and/or face value fluctuates depending upon the value,
securities or equity products supporting the policy, invested in funds called separate accounts,
the sum of which comprise the cash value of the policy.
- Variable Universal Life Insurance
A combination of the features of variable life insurance and universal life insurance under the same contract.
Benefits are variable based on the value of underlying separate accounts, and premiums and benefits are adjustable
at the option of the policyholder.