Life Insurance Terms and Definitions

Have you ever been in a conversation where you found yourself wondering what a word or phrase means concerning life insurance terms?  Yet pretending you knew the meaning because you were too embarrassed to ask? I’ve been there. And everyone else has, too.

Would you like to be more informed?

While faking it in some situations may not have any ill effects, not knowing the key life insurance terminology associated with life insurance could result in you not making the best decisions for your family’s financial future.

While most American consumers understand the basic concept behind life insurance terminologies—when someone dies, another person receives a life insurance death benefit—many consider it a complex financial tool.^*

The life insurance industry has no shortage of lingo and life insurance abbreviations. Before you sign on the dotted line for any policy, you should understand the language of life insurance.

To get you started, here’s some life insurance terminology you’ll encounter as you explore your best options for securing peace of mind for your loved ones.

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Life Insurance Terminology in Plain Language

What are common terms used in life insurance?

• Term life insurance – A type of life insurance that’s effective for a specified period of time (a “term”). If you die during the term period, your beneficiary receives a death benefit payment. This form of life insurance is straightforward and nearly always more affordable than permanent policies.

• Permanent life insurance – A type of life insurance that does not expire. It provides a death benefit and some degree of savings. Policies are more costly than term – life policies.

• Death benefit – The money the life insurance company will pay to your beneficiary when you die. It gives them funds to help them pay for their funeral expenses, pay for the rent or mortgage, pay for higher education, keep up with utility bills, etc.

• Premium – The payment you’re required to make in exchange for your policy.

• Primary beneficiary – The person you’ve designated to receive the death benefit paid by the life insurance company when you die.

• Contingent beneficiary/beneficiaries – The person or people (most commonly your children) whom you’ve designated to receive the death benefit if the primary beneficiary is no longer living.

• Rating class – The risk category a life insurance company will place you in based on information on your insurance application, your age, and the results of your medical exam (paramed). Several levels exist (in order of least to the highest risk): Preferred Plus, Preferred, Standard Plus, Standard, and Sub-standard. The lower the risk, the lower your premium.

• Underwriting – The life insurance company’s process of researching and gathering information about you and analyzing it to determine which rating class to place you in.

• Paramed exam – The medical exam required when applying for certain life insurance policies. It’s paid for by the insurance company and is often done conveniently at your home. The results help insurance companies determine which rating class you fit into.

• Quote – The estimated coverage and cost of a life insurance policy. It is not a guarantee. For instance, when you request a quote online for term life insurance, you will be given an estimated cost for the coverage amount you inquired about based on the information you provided. After the insurance company has gathered additional information and has done more research, it can tell you the exact coverage and cost you’re eligible for.

• Rider – An add-on to a life insurance policy that provides additional benefits or flexibility to better suit your specific needs. Examples include the waiver of premium rider and the term conversion rider.

• Waiver of premium rider – A rider that relieves you of paying future premiums for your life insurance policy if you’ve become seriously ill or disabled and cannot work.

• Term conversion rider – A rider that gives you the flexibility to convert your term life insurance policy into a permanent policy within a certain amount of time without undergoing another medical exam.

• Convertible – Describes a term life insurance policy that can be converted to a permanent policy (note that your premium will likely go up at that time because permanent policies cost more than term policies).

• Renewable – Describes a term life insurance policy that can be renewed at the end of the term without another medical exam.

Of course, this is just a sampling of the lingo you’ll see as you explore securing the financial well-being of your family. As you’re working with a trusted life insurance professional to determine what options are best for you, ask for clarification if you don’t understand what terminology means or why it matters.

Don’t be afraid to ask “stupid” questions to have life insurance terms explained. When it comes to the future of those you love, there’s no such thing.

^*“Insurance Revealed” – An online survey of American consumers’ opinions and beliefs about life insurance conducted in the summer of 2012 by Praxis Research on behalf of ING U.S. and the ING family of life insurance companies

Life Insurance Lingo 101.

Life insurance terms and definitions seem to have come from another planet. Who can understand it? Well, this non-Martian life insurance glossary of life insurance terms and definitions should help.

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Absolute Assignment: The transfer of ownership of a life insurance policy to a separate entity. The assignee becomes the new policy owner. It is commonly used when banks require life insurance as collateral for a loan.

Accelerated Death Benefit: This benefit is included in many policies today. It provides for the payment of a portion of the death benefit prior to the insured’s death should the insured be diagnosed as terminally ill. The specific requirements vary by company.

Read more: Accelerated Death Benefit Rider Explained

Accidental Death Benefit (ADB): This benefit is optional with many policies today. It provides an additional death benefit when the insured’s death is caused by an accident.

Actual Age: A method of calculating an applicant’s insurance age. This method uses the insured’s actual age and is sometimes called Age Last Birthday or Attained Age.

Actuary: An individual employed by an insurance company to calculate premium rates, reserves, dividends, and other vital figures using risk factors obtained from experience tables.

Adjustable Life Insurance: A form of life insurance that allows the policy owner to change various benefits of the policy, including the face amount, the premium amount, the length of coverage and the length of the premium payment period.

Adverse Selection: The tendency of persons with poorer-than-average health expectations (higher risk) to apply for or continue insurance coverage to a greater extent than persons with average or better-than-average health expectations (lesser risk).

Read more: What is adverse selection in insurance?

Age Change: The date on which an insured’s age changes. In most life insurance contracts this is the date midway between the insured’s birthdays. The date of age change depends on whether the insurer uses the age of the nearest birthday or the age of the last birthday calculation for determining premium rates.

Age Last Birthday: A method of calculating an applicant’s insurance age. This method uses the insured’s actual age and is sometimes called Actual Age or Attained Age.

Age Nearest Birthday: A method of calculating an applicant’s insurance age. This method is based on a person’s nearest birthdate for rate calculations. If the person’s birthdate is within the next six months, they are considered the next age.

Age Limits: The age above or below which an insurer will not issue an insurance policy or continue a policy presently in force.

Agent: An authorized and licensed representative of an insurance company that sells and services insurance policies. Agents represent the insurance company and typically only sell policies from that company.

Amendment: A formal document that corrects or revises an insurance policy. When authorized by the insurer and the policy owner, the amendment attaches to or becomes part of the policy.

Annuitize: To begin a series of payments from an annuity. This term also refers to the settlement of a life insurance policy under the contract’s annuity options.

Annuity: A contract sold by a life insurance company that provides fixed or variable payments to an annuitant, either immediately or at a future date.

Applicant: The person applying for the insurance policy. The applicant may be different from the proposed insured or the policy owner.

Application: Forms required by the insurance company which the proposed insured completes when requesting coverage from an insurer.

Approved: A status that indicates the insurance company has completed underwriting and agrees to issue a policy to the proposed insured.

Assignment: The transfer of the ownership rights of a life insurance policy from one person to another.

Attained Age: The age of an individual on a given date. Some insurance companies use attained age as a method of calculating insurance premiums.

Attending Physician’s Statement (APS): Information provided by a proposed insured’s physician covering medical history and results of medical examinations. It is used to determine the appropriate underwriting classification for the proposed insured.

Aviation Hazard: The increased risk of death or injury resulting from participation in aviation, usually as a pilot. The presence of aviation hazards will often result in an extra premium or the exclusion of certain benefits.

Avocation: This refers to either an occupation or an activity the insured participates in.

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Backdating: A procedure used to make the effective date of a policy earlier than the application date. Backdating is commonly used to make the insurance age of the insured policy issue lower than it actually is in an effort to receive a lower premium. Most policies can be backdated for up to six months. Backdating is also commonly referred to as Saving Age. (For more information, read our “Life Insurance Policy Backdating (Terms Explained)“).

Beneficiary: A person(s) designated by the policy owner to receive the proceeds of an insurance policy upon the death of the insured.

Read more: How To Choose a Life Insurance Beneficiary

Benefit: For life insurance, it is the amount of money specified in a life insurance contract to be paid to the beneficiary upon the death of the insured. It is commonly referred to as the Death Benefit. For health insurance, it is the amount of money payable by a health plan for the cost of covered services, as defined in the Certificate of Coverage.

Benefit Period: The maximum length of time for which benefits will be paid under the terms of the insurance policy.

Blood Chemistry Panel: A series of blood tests that an insurance company may require of applicants during the underwriting process.

Broker: A licensed representative who sells and services insurance policies. Brokers represent their customers and are usually contracted to offer insurance products from several insurance companies.

Burial Insurance: A life insurance policy designed to provide just enough insurance to cover funeral and burial expenses.

Business Life Insurance: Life insurance purchased for business rather than personal purposes. Examples are insurance owned by a business on the life of a key employee and insurance owned by a business partner on the life of another partner.

Buy-Sell Agreement: An agreement for the transfer of business ownership to the remaining owners at the death or retirement of an owner. The transaction is typically funded through a life insurance policy carried on the lives of each individual owner.

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Carrier: Another name for an insurance company.

Cash Value: The amount of cash accumulated inside some types of permanent life insurance policies. The cash value typically grows over time and often earns a rate of interest, depending on the type of policy. It can be borrowed by the insured or withdrawn when the policy is surrendered.

Change of Beneficiary: A contract provision that allows the policy owner to change the beneficiary whenever desired unless the beneficiary has been designated as irrevocable. Changes to an irrevocable beneficiary require written permission of the beneficiary.

Read more: Can you change your life insurance beneficiary?

Change of Beneficiary Form: A form provided by the insurer that the policy owner must complete in order to change the beneficiary on a policy.

Child(ren) Rider: An optional policy provision that provides a small amount of life insurance coverage on the lives of the primary insured’s children. The amount of coverage varies by company and one rider typically covers all the insured’s eligible children.

Claim: Notification to an insurance company that payment of the benefit is due under the terms of the policy.

Clause: An article or added provision in a life insurance contract, such as a Suicide Clause.

Collateral Assignment: The pledge of a life insurance policy or its value as security for the repayment of a loan is known as collateral assignment of life insurance. The assignee, in the context of collateral assignment, receives rights that are superior to the rights of the original policy owner and beneficiary, to the extent of the obligation owed to the assignee.

Commissions: A fee or percentage of premium allowed to a salesperson or agent for services rendered.

Commutation Right: The right of a beneficiary to receive in a single lump sum the remaining payments under an installment option which was selected for the settlement of the proceeds of a life insurance policy.

Company Ratings: QuickQuote provides our customers with an A.M. Best and Standard & Poor’s ratings for each of our partner insurance companies as a way to compare the performance and claims paying ability among the companies. It is important to remember that industry ratings are not a warranty of an insurer’s current or future ability to meet its contractual obligations, and they do not reflect the performance of the companies’ separate accounts. See our ratings definitions for more details.

• A.M. Best: Ratings represent a measure of a company’s overall performance. The basis for the rating is mostly quantitative analysis drawn from annual statements.
• Standard & Poor’s: Ratings represent a measure of a company’s claims-paying ability. The basis for the rating is extensive quantitative and qualitative analysis, including interviews and often non-public information.

Conditional Premium Receipt: A receipt given to an applicant when a payment accompanies an application for insurance. If conditions of the conditional coverage are met, the receipt verifies the coverage will be in force from the date of application, provided the insurer would have issued the coverage on the basis of the facts revealed on the application, medical examination and other usual sources of underwriting.

Contestability Period: The time period during which the insurer can deny a claim if it finds material misrepresentations were made in the application. This period usually covers the first two years a policy is in force. A policy becomes “incontestable” when the contestability period is over.

Contingent Beneficiary: A person(s) designated by the policy owner to receive policy proceeds if the Primary Beneficiary is deceased at the time benefits become payable. This is often referred to as a secondary beneficiary.

Conversion Benefit: This allows the policy owner to change one policy type for another. An example is exchanging a term life insurance policy for a permanent life insurance policy. Most term life insurance policies offer this benefit.

Conversion Credit: A one-time credit given when converting term life insurance to permanent life insurance.

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Death Benefit: The dollar amount of coverage that is paid to the designated beneficiary(s) of a life insurance policy upon the insured’s death.

Decreasing Term Life Insurance: A type of term life insurance with a death benefit that decreases each year or policy anniversary. This type of life insurance is typically used to cover a loan balance that decreases over time.

Diagnostic Tests: Tests and procedures ordered by a physician to determine if the patient has a certain condition or disease based upon specific signs or symptoms demonstrated by the patient. Such diagnostic tools include, but are not limited to radiology, ultrasound, nuclear medicine, laboratory, pathology services, or tests.

Double Indemnity: The payment of twice the basic benefit in the event of loss resulting from a specific cause or under specific circumstances. This is commonly referred to as an Accidental Death Benefit. (For more information, read our “Life Insurance vs. Accidental Death & Dismemberment (AD&D) Insurance: Which Is Better for You“).

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Effective Date: The date an insurance policy goes into effect. This is sometimes referred to as the Policy Date.

Electronic Funds Transfer (EFT): An arrangement in which premium payments are drawn from an insured’s bank account. This is also referred to as Auto-Draft or Pre-Arranged Withdrawal (PAW or PAC).

Endorsement: Used to clarify or make revisions to particular provisions of a health or life insurance policy.

Estate Planning: The planning for the administration of an estate upon the death of an individual. Estate planning typically involves establishing wills and/or trusts to minimize the loss of estate value due to estate taxes and is often funded with life insurance.

Evidence of Insurability: Factual information used by insurance companies to determine an applicant’s qualification for insurance. Examples of information used may include paramedical exams, medical records, application statements, and motor vehicle reports among others. (For more information, read our “What is evidence of insurability?“).

Examiner: A health care professional designated to provide paramedic or medical exams on insurance applicants.

Exclusions: Specific conditions or circumstances listed in an insurance policy for which the policy will not provide benefit payments.

Expiration Date: The date on which an insurance policy ceases to provide coverage to the insured.

Extra Premium: The amount charged in addition to the regular premium to cover any extra hazard or special risks such as aviation or hazardous activities. This is commonly referred to as Flat Extra.

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Face Amount: The amount of coverage provided by a life insurance policy. This is also referred to as Coverage Amount.

Face Page: One of the first pages of a life insurance policy. This page lists the policy specifications such as the name of the insured, the policy owner, the beneficiary, the policy number, the amount of insurance and the premium amount, among other things.

Final Expenses: Expenses incurred at the time of a person’s death including funeral costs, probate costs, current liabilities and taxes.

Fixed Benefit: An insurance policy benefit that remains the same and does not change.

Flat Extra: An extra dollar amount per $1,000 of insurance that is charged to cover any extra hazard or special risk such as aviation or hazardous activities. This is commonly referred to as Extra Premium.

Flexible Premium Policy: A type of permanent life insurance policy in which the policy owner may vary the amount or timing of premium payments.

Flexible Premium Variable Life Insurance: A type of permanent life insurance policy in which the policy owner may vary the amount or timing of premium payments. Policy values are variable and depend on the performance of a separate investment account.

Free Look Period: The period of time in which a policy owner has the legal right to examine a newly issued policy and return it for a full refund of premium if not satisfied for any reason. The period of time varies by state and is usually between 10 and 30 days, with 10 being the most common.

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Grace Period: The period of time between a premium’s due date and the date the policy will lapse if the premium remains unpaid. This period is usually 30 days. If the insured dies during the grace period, the unpaid premium is deducted from the policy proceeds.

Group Life Insurance: A life insurance policy issued to a group of people, usually through an employer, union, or association.

Guaranteed Issue An insurance policy provision that allows a certain amount of insurance or type of insurance to be issued without medical evidence of insurability.

Guaranteed Rates: A life insurance policy provision that guarantees the premium rates will not change during the entire term of the policy. Most guaranteed term life insurance policies have guaranteed rates.

Guaranteed Term Life Insurance A type of renewable term life insurance that remains in force provided the policy premiums are paid on time.

Guaranteed Insurability: An insurance policy provision that allows the insured to buy additional fixed amounts of life insurance at fixed time intervals without evidence of insurability.

Guaranteed Renewable: An insurance policy provision that guarantees an insurance policy will continue in force provided the policy premiums are paid on time. An insurance company can typically only cancel a guaranteed renewable insurance policy for non-payment of a premium.

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Hazardous Activities: These are activities that, if participated in, may make you ineligible for coverage from the insurance carrier. Examples include, but are not limited to, scuba diving, jet, snow, and water-skiing, snowboarding, hang gliding, skydiving, paragliding, bungee jumping, mountain climbing, and amateur racing. Be sure to check the specific insurance company’s details and/or brochure for exact specifics.

HIV Consent Form: A required form completed by the applicant and submitted with the application for insurance. The form discloses to the applicant that the insurance company may test for the presence of HIV in the applicant’s blood. By signing, the applicant acknowledges this and provides authorization for the test.

Home Office: The headquarters of an insurance company.

Home Office Urine Specimen (HOS): A full-screen urine test that an insurance company may require of applicants during the underwriting process. The HOS typically tests for the presence of alcohol, drugs, or nicotine in the system, as well as medical disorders.

Read more: Do life insurance companies test for drugs?

Home Health Care: Medical care provided by trained personnel in the patient’s home for patients who do not need the more extensive treatment provided by a hospital, skilled nursing facility, or extended care facility, or for patients who are not capable of going to a medical facility for outpatient care

Hospice: A program that provides care to the terminally ill.

Hospital: A facility that is licensed by the proper authority in the jurisdiction in which they are located and provides inpatient services for the care and treatment of patients.

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Incidents of Ownership: Various rights that may be exercised under the policy contract by the policy owner. Some incidents of ownership may include rights: (1) to cash-in the policy, (2) to receive a loan on the cash value of the policy, and (3) to change the beneficiary designation.

Incontestability Clause: A life insurance policy provision that states after the policy has been in force for a specified period of time, the company cannot deny a claim based on a material misrepresentation made in the application. The typical period of time for the clause is two years. (For more information, read our “Life Insurance Incontestability Clause (Terms Explained)“).

Inspection Report: A report sometimes required by an insurance company in conjunction with the underwriting of an application for coverage. The report typically includes information pertaining to the applicant’s occupation, health history, and financial status. The report is usually completed by the insurance company or an investigative agency.

Insurability: General acceptability by an insurance company of an applicant for insurance based on underwriting review, which may include items such as the applicant’s current health status, medical history and driving record among others.

Insurable Interest: The existence of potential financial loss on the part of the policy owner and/or beneficiary(s) in the event of the death of the insured. The policy owner and any beneficiaries must have an insurable interest.

Insurance: A system for reducing risk by transferring the risks of several individual entities to one entity, such as an insurance company. Each individual entity contributes monetarily (premiums) to cover the risk assumed by the insurance company.

Insurance Company: A company that provides insurance coverage through the issuance of insurance policies. This is also referred to as the Insurer.

Insurance Department: An area within each state’s government that administers and regulates the insurance industry within the state.

Insurance Needs Estimator: A proprietary software program developed by QuickQuote to estimate the amount of life insurance protection an individual needs

Insurance Policy: The physical, written document issued by an insurance company to the policy owner. The insurance policy represents the written contract between the insurance company and the policy owner.

Insured: The individual who is covered by an insurance policy.

Irrevocable Beneficiary: A type of beneficiary designation that cannot be changed without the written consent of the beneficiary.

Irrevocable Trust: A trust that cannot be revoked or amended by the party who establishes it. This type of trust is often established when life insurance is purchased to protect an estate.

Issue Date: The actual date an insurance policy is issued. This may also be the effective date of the policy.

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Juvenile Insurance: Life insurance issued on the life of a child. This type of life insurance policy is typically whole life insurance.

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Key Person Insurance: An insurance policy placed on the life of an important person within a company. The policy proceeds are used to offset the loss experienced by the company due to the person’s death.

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Lapse: The termination of an insurance policy due to non-payment of premium.

Lapse Notice: The notice provided in writing to the policy owner that the policy has lapsed.

Length of Coverage – The length of time you will be covered by an insurance policy. Length of coverage is typically applied to term life insurance products. Below is an explanation of the length of coverage as used on the QuickQuote.com site.

QuickQuote has partnered with approximately 30 different term life insurance companies over the years. These companies offer a variety of coverage options, including the length of coverage. Our selection of companies offers the following coverage lengths:

• 5 years
• 10 years
• 15 years
• 20 years
• 25 years
• 30 years

When selecting the length of coverage, it is important to choose a period that will cover you through life’s important events, or personal milestones. We all have reasons for purchasing life insurance, and it’s important to keep these core reasons in mind when selecting the length of coverage. Some items to consider include:

• Years left on your mortgage
• Years left until your children graduate high school, college, medical school, etc.
• Years left until retirement
• Business succession planning
• Estate taxes
• Establishing a trust for grandchildren
• Providing for dependent relatives
• Funeral expenses

Level Premium: A premium that remains the same throughout the period specified in the insurance policy.

Level Term Insurance: A type of term life insurance policy where the life Insurance face value remains the same throughout the period specified in the insurance policy.

Life Expectancy: The average number of years of life remaining for persons of a given age according to a particular mortality table.

Life Insurance: Coverage placed on the life of an individual whereas an insurance company issues a policy and pays a stated death benefit in the event of the insured’s death.

Life Insurance Trust: A type of life insurance policy where a trust company is named as the beneficiary and distributes the proceeds of the policy under the terms of the trust agreement.

Living Benefit: A benefit that provides for the payment of a portion of the death benefit prior to an insured’s death should the insured be diagnosed as terminally ill. The specific requirements vary by company. This is commonly called an accelerated death benefit.

Lump-Sum: The primary method of the settlement of a life insurance policy. The policy proceeds are paid to the beneficiary(s) all at once rather than in installment payments.

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Material Misrepresentation: A statement made by an applicant or proposed insured in the policy’s application that is not factually correct. If the truth had been disclosed, the insurance company would not have issued the policy, would have issued it differently, or would have issued it with limited benefits or a higher premium.

Medical Examination: An exam completed by a physician. The exam may be required as a part of medical underwriting.

Medical Information Bureau (MIB): A service that compiles the medical information and application history of individuals who have applied for insurance in the past. Most insurance companies check an applicant’s MIB report during underwriting. (For more information, read our “Medical Information Bureau (MIB): What It Does & How It Works“).

Mental Health/Behavioral Health: A condition or disease regardless of its cause, listed in the most recent edition of the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders.

Misrepresentation: The act of making, issuing, circulating, or causing to be issued or circulated any written or verbal statement that does not accurately represent the correct policy terms.

Mode: The term of premium payments for an insurance policy. Typical modes include monthly, quarterly, semi-annual, and annual.

Moral Hazard: A condition of morals or habits that could affect an individual’s insurability.

Mortality: The frequency of deaths in proportion to a specific population.

Mortality Rate: The number of deaths in a group of people, usually expressed as deaths per thousand.

Mortality Table: A table or chart listing the probabilities of death occurring at various ages. This is often used by insurance companies to establish rating and underwriting guidelines.

Multi-Year Premium Mode: A premium payment option where future annual premiums are paid in advance at a discount.

Mutual Insurance Company: An insurance company that is owned by its policy owners. Net earnings and savings of the company are distributed to the policy owners in the form of dividends.

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Network Providers: The doctors, clinics, hospitals, and other medical providers that are in the network(s) of the health plan.

Non-Contributory: A group benefits plan typically through an employer, in which the employer pays all the premiums.

Non-Tobacco/Non-Smoker: A rating class assigned to an insurance policy in which the insured has been classified as a non-user of tobacco and/or nicotine products.

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Occupational Hazards: Hazards associated with an insured’s occupation that increase the possibility of injury, illness, or death. Such hazards may have an impact on the insurability of an applicant.

Orphan: A policy owner who is not currently being serviced by the writing agent/broker.

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PAC: See Pre-Authorized Check.

Paid-Up Insurance: An insurance policy that does not require future premium payments to provide the death benefit of the insured person.

Paramedical Exam/Paramed Exam: A brief physical examination the insurer typically requires of applicants during the underwriting process. The exam is usually performed by a registered nurse at a time and location convenient to the applicant. The exam usually consists of measurements (e.g. height/weight, blood pressure, and heart rate), body fluid samples (e.g. urine, blood), and a medical history questionnaire. The insurance company pays for the exam.

Payment Mode: Most insurance companies allow you to choose from the following payment modes:

• Annually
• Semi-annually
• Quarterly
• Monthly

There are some things to consider when selecting a payment mode:

Annually is actually less expensive in the long run. Although you pay the entire amount upfront, over the course of a year you will pay less. The reason is that insurance companies build in a ‘factor’ for modal premiums to cover their cost of billing administration. For example, assume your annual premium is $1,000.

• Annual premium = $1,000.  Annual cost = $1,000.
• Semi-annual premium = $520.  Annual cost = $1,040.
• Quarterly premium = $265.  Annual cost = $1,060.
• Monthly premium = $88.  Annual cost = $1,050.

* All numbers are hypothetical. Actual modal factors vary by company.

Payor: The person making premium payments on a policy.

Permanent Life Insurance: The type of life insurance that may provide coverage for the insured’s entire lifetime. Permanent life insurance policies may include cash value accounts, policy loans, surrender options/fees, etc. Examples are Whole Life Insurance and Universal Life Insurance. Most term life insurance policies can be converted to permanent life insurance policies.

Policy: The written document issued by an insurance company to a policy owner. The policy represents the insurance contract between the insurance company and the policy owner.

Policy Anniversary: The anniversary of the date of issue as shown in the policy.

Policy Date: The date the insurance policy becomes effective.

Policy Fee: A charge for policy administration expenses incurred by the insurance company. The policy fee is usually included in the premium.

Policy Loan: A loan from the insurance company to the policy owner secured by the policy’s cash value.

Policy Owner: The individual who owns an insurance policy and who has all contractual rights related to the insurance policy. The policy owner may or may not be the same person as the insured, payor, or beneficiary.

Pool: A method of distributing insurance risk in which the individual participants share overall risk with the other participants.

Pre-Authorized Check (PAC): A premium-payment arrangement in which the policy owner authorizes the insurer to withdraw the premium payments from a bank account. This arrangement is usually required for the monthly payment mode.

Preferred Rating Class: One of the best premium rate classes available on life insurance policies for applicants that are determined by underwriting to be in better than average health.

Preferred Plus Rating Class: The best premium rate class available on life insurance policies for applicants that are determined by underwriting to be in better than average health.

Premium: The amount of money to be paid by the policy owner to the insurance company for the benefits provided under an insurance policy.

Premium Mode: The frequency of premium payments elected by the policy owner. Typical premium modes include monthly, quarterly, semi-annual, and annual.

Premium Notice: A notice from an insurance company to a policy owner that a premium will be due on a given date.

Premium Rate: The price per unit of insurance.

Premium Rate Class: The appropriate price category to which an applicant qualifies according to an insurance company’s underwriting guidelines. Common rate classes are Preferred Plus, Preferred, Standard Plus, Standard, and Substandard.

Premium Receipt: The receipt is given to a policy owner for the payment of a premium.

Prescription: A written order or refill notice issued by a licensed medical professional for drugs that are only available through a pharmacy.

Primary Beneficiary: The person(s) designated by the policy owner to which the proceeds of a life insurance policy will be paid upon the death of the insured.

Proceeds: The amount payable under the terms of a life insurance policy upon the insured’s death or upon the maturity of an endowment.

Proposed Insured: The person named in a life insurance application as the person whose life is to be covered by the insurance.

Provision: A statement or clause, found in an insurance policy, to establish some term of the contract.

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Quote: The estimated premium amount for an applicant based on several factors including the type of insurance, coverage amount, length of coverage, age, gender, health and medical history, family history, build, and approximate rating class. All quotes are preliminary estimates with final rates determined by insurance company underwriting.

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Rating Class: The appropriate price category to which an applicant qualifies according to an insurance company’s underwriting guidelines. Common rate classes are Preferred Plus, Preferred, Standard Plus, Standard, and Substandard.

Rate Banding: The process of grouping term life insurance death benefit amounts. The rate per thousand typically changes at certain death benefit levels or band breaks.

Rate Per Thousand: The price per unit (or $1,000) of the death benefit. Term life insurance premiums are calculated by multiplying the rates per thousand of the death benefits, and then adding the policy fee.

Rated Policy: A policy issued at a substandard rating class based on underwriting guidelines.

Rebating: The act of giving something of value to an applicant by the agent/broker in return for purchasing a life insurance policy (e.g. sharing commissions). Rebating is illegal in most states.

Read more: Life Insurance Rebating (Terms Explained)

Re-Entry: A policy provision that allows an insured to renew their term life insurance policy at the end of the term based on their attained age and health status. Evidence of insurability is required for re-entry.

Reinstatement: A policy provision that allows a policy to be restored from a lapsed status. This is usually allowed during the 31 days following the expiration of an insurance policy’s grace period. (For more information, read our “How to Reinstate a Lapsed Insurance Policy“).

Renewable Term Insurance: Term life insurance that may be renewed for another term without evidence of insurability.

Renewal: The process of continuing a policy by paying the premium due.

Replacement: The act of terminating a policy with an insurance company and replacing it with a new insurance policy. An internal replacement involves both policies from the same company while an external replacement involves two separate policies, each from a different insurance company. Replacement transactions are highly regulated for the benefit of consumer protection.

Replacement Form: A required form that must be completed if the applicant is replacing existing coverage. The replacement form notifies the existing insurer that the applicant is replacing their policy with a policy from another company.

Reserve: The amount of money an insurance company holds which, with future premiums and an assumed rate of interest, will pay all contractual obligations as they become due. Insurance company reserves are an important factor used to establish a company’s industry ratings.

Revocable Beneficiary: A type of beneficiary designation that can be changed without the beneficiary’s consent.

Rider: A special provision attached to a policy that either expands or restricts the benefits of the policy. Exclusion riders typically exclude certain conditions from coverage.

Risk: The probability of injury, illness, or death associated with an insured.

Risk Classification: The process by which underwriting determines the risk associated with an applicant and assigns an appropriate rating class to the policy.

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Saving Age: A procedure used to make the effective date of a policy earlier than the application date. Saving age is commonly used to make the insurance age of the insured at policy issue lower than it actually is in an effort to receive a lower premium. Most policies can be backdated for up to six months. Saving age is commonly referred to as backdating.

Secondary Beneficiary: A person(s) designated by the policy owner to receive policy proceeds if the Primary Beneficiary is deceased at the time benefits become payable. This is often referred to as a contingent beneficiary.

Second-To-Die Life Insurance: A type of life insurance policy that insures the lives of two people, typically a husband and wife. The death benefit proceeds are payable upon the second death.

Settlement: The process of receiving the proceeds from a life insurance policy. Settlement choices usually include lump-sum or annual payments.

Simplified Underwriting: An underwriting process that applies a less strict analysis of risk factors.

Single-Premium Life Insurance: A life insurance policy that requires only one premium and is guaranteed to remain paid-up throughout the insured’s lifetime.

Split-Dollar Plan: An arrangement in which two parties, usually an employer and employee, jointly purchase the policy, pay premiums and share in the policy’s benefits.

Spousal Discount: A discount for purchasing life insurance coverage together with a spouse from the same insurance company. Typically, the second policy fee is waived. Spousal discounts are more often seen on permanent life insurance policies.

Standard Rating Class: The premium rate class available on life insurance policies for applicants that are determined by underwriting to be of average health.

Standard Plus Rating Class: The premium rate class available on life insurance policies for applicants that are determined by underwriting to be of slightly better than average health.

Standard Risk: An average risk as determined by underwriting.

Stock Insurance Company: An insurance company formed and capitalized through the sale of shares of stock. Those purchasing the stock are owners and share in the company’s earnings through stock dividends declared by the company.

Sub-Standard Risk: A below-average risk as determined by underwriting. Insurance policies can be issued to individuals with sub-standard risk and are referred to as table rated or modified.

Suicide Clause: A life insurance policy provision that states if the insured dies by suicide within a certain period of time from the date of issue (usually two years) the amount payable would be limited to the total premiums paid minus any policy loans or outstanding premiums.

Substance Abuse/Chemical Dependency: The consumption of alcohol or other chemical agents at dosages that place a person’s social, economic, psychological, and physical welfare in potential hazard, or endangers public health, morals, safety or welfare, or a combination of these.

Surrender: The cancellation of a life insurance policy.

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Term Conversion: A policy provision that allows a term life insurance policy to be converted to a permanent life policy offered by the company for a specified period of time. Usually, the insured can convert to a permanent policy at the same amount of coverage without providing evidence of insurability.

Term Life Insurance: A life insurance product that provides death benefit protection for a specified period of time. The policy pays benefits only if the insured dies during the term period.

Read more: How To Buy Term Life Insurance

Third-Party Owner: A policy owner who is not the insured.

Tobacco: Examples include, but are not limited to cigarettes, cigars, chewing tobacco, and snuff. The use of these products can have an impact on the rating class you receive.

Twisting: The illegal practice of inducing a policy owner to replace a policy by providing inaccurate, incomplete, or misleading information.

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Underwriter: The individual or team within a life insurance company who is trained to evaluate the insurability and determine the classification of applicants for insurance protection.

Underwriting: The process of evaluating applications for insurance based on an established set of guidelines. Underwriting determines the risk associated with an applicant and either assign the appropriate rating class for the policy or declines to offer a policy.

Read more: Life Insurance Underwriting (Terms Explained)

Uninsurable Risk: An individual who is not acceptable for insurance due to excessive risk related to current health, medical history, occupation, avocations, etc.

Universal Life Insurance: A type of permanent life insurance that combines term life insurance and an investment feature into one contract. Universal Life insurance policies generally offer flexible premium payments.

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Variable Life Insurance: A variation of permanent life insurance that offers cash values that fluctuate based on the performance of the underlying mutual funds in the investment account.

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Waiver of Premium Rider (WP): An optional policy rider that provides for the continuation of life insurance coverage without further premium payments if the insured becomes totally disabled.

War Clause: A provision in a life insurance policy excluding the liability of an insurance company if the insured’s death is the direct result of a war.

Whole Life Insurance: A type of permanent life insurance that provides a level death benefit upon the insured’s death, or a cash endowment upon policy maturity that is equal to the death benefit. Whole life insurance policies also accumulate cash values.

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Yearly Renewable Term (YRT): A type of term life insurance policy that provides a level death benefit with premiums that increase each year with the insured’s age. YRT is also referred to as an annually renewable term.

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Zero Dollar Life Insurance: A type of group term life insurance that costs zero-premium dollars out of pocket to the employee, while the employer covers the cost.

With this guide, you should now be confident when conversing about life insurance terms and definitions.