Glossary of Insurance Terms
Accelerated Death Benefit: A benefit included in a life insurance policy or added to a life insurance policy through a policy rider that gives the policyowner the right to receive a portion of the policy’s death benefit during the insured’s lifetime when the insured is terminally ill as defined in the policy.
Accidental Death Benefit (ADB): A supplemental life insurance policy benefit that provides a death benefit in addition to the policy’s basic death benefit if the insured’s death occurs as the result of an accident.
Amendment: A provision added to a contract that modifies an existing provision.
Annuity: A financial contract between an insurer and a customer under which the insurer promises to make a series of periodic benefit payments to a named individual in exchange for the contract owner’s payment of premium or series of premiums to the insurer.
Automatic Premium Loan (APL) Provision: A permanent life insurance policy non-forfeiture provision that allows an insurer to automatically pay an overdue premium for a policyowner by making a loan against the policy’s cash value as long as the cash value equals or exceeds the amount of the premium due.
Beneficiary: The person or legal entity the owner of an insurance policy names to receive the policy benefit if the event insured against occurs.
Cash (Surrender) Value: The amount of cash available to the policyholder for a policy loan, and/or the amount payable in cash upon surrender of the policy.
Children’s Term Rider: A rider that may be added to term, whole life, and universal life insurance policies that provides term life coverage on the insured’s children.
Claim: A request for payment of benefits under the terms of an insurance policy following the occurrence of a covered loss.
Convertible Feature: Policyholder has the option to convert to a permanent form of insurance (whole life/universal life) without evidence of insurability.
Convertible Term Insurance Policy: A term life insurance policy that gives the policyowner the right to convert the policy to a permanent plan of insurance.
Death Benefit: The amount of money that may be paid to a beneficiary in the event of the insured’s death, as described in the insurance contract.
Evidence of Insurability: The proof that an insurance underwriter requires during the underwriting process in order to determine that a proposed applicant meets the insurer’s health and lifestyle requirements and is an insurable risk.
Extended Term Insurance Option: One of several non-forfeiture options included in life insurance policies that allow the owner of a policy with cash value to discontinue premium payments and to use the policy’s net cash value to purchase term insurance for the full coverage amount provided under the original policy for as long a term as the net cash value can provide.
Fraudulent Claim: An insurance claim for which the claimant attempts to collect policy benefits by providing false information to an insurer.
Grace Period: A period following each premium due date, other than the first due date, during which an overdue premium may be paid, and during which time all policy provisions remain in force and effect.
Guaranty Association: An organization that is composed of all the life insurance companies operating in a state and that is responsible for covering the financial obligations of member companies that become insolvent.
Guaranteed Cash Value: The accumulation account value based on the guaranteed minimum interest rate and maximum expense and mortality charges.
Illustration: As defined by the National Association of Insurance Commissioners Life Insurance Illustrations Model Regulation, a life insurance sales presentation or depiction that portrays non-guaranteed values of a life insurance policy, portrays these values over a period of years, and is shown to a potential customer.
Insurance: A mechanism for transferring the risk of financial loss from events such as illness or death from an individual or entity to an insurance company.
Insurability: An assessment of the applicant/insured’s health status used in determining the appropriate premium that is commensurate with the risk assumed by the insurer.
Insurable interest: A condition such that both applicant and beneficiary for a life insurance policy would suffer financial loss if the insured died.
Insured: The person whose life or income is covered by the insurance policy.
Insurer: The insurance company assuming the risk under an insurance contract.
Lapse: The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.
Modified Adjusted Gross Income (MAGI): Your gross income from all sources (including wages, salaries, tips, taxable interest, dividend income, alimony, capital gains (losses), increased and decreased by certain adjustments (not including itemized deductions). (See IRS Publication 590 Individual Retirement Arrangements (IRAs).
Mortality: The risk of death for any given person. Mortality factors are determined by considering age, gender, height, weight, etc. These charges are expressed in terms of “cost per $1,000” of death benefit.
Mutual Insurance Company: An insurance company that is owned by its policyowners.
Non-Forfeiture Option: Also known as Guaranteed Value Option. An option available to a policyowner who has ceased paying premiums under a permanent life insurance policy. Such options usually include surrender of the policy for its cash value, conversion to paid-up permanent coverage with reduced benefits, or to paid-up term coverage for the original death benefit.
Permanent Life Insurance: Life insurance that provides coverage throughout the insured’s lifetime, provided premiums are paid as stated in the policy, and also provides a savings element.
Policy: A written document that contains the terms of the contractual agreement between an insurance company and the owner of the policy.
Policy Loan: A loan that an insurer makes to the owner of a permanent life insurance policy that is secured by the policy’s cash value. When the policy’s benefits are paid, the amount of any outstanding loan is deducted from the policy benefits.
Premium: The payment, or payments, that a policyholder makes to an insurer in exchange for the insurer’s obligation to pay benefits.
Rated Policy: An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with special exclusions, a premium rate that is higher than the rate for a standard policy, a reduced face amount, or any combination of these.
Reduced Paid-up Option: One of several non-forfeiture options included in life insurance policies that allow the owner of a policy with cash value to discontinue premium payments and to use the policy’s net cash value to purchase permanent insurance for such reduced coverage amount as the net cash value can provide.
Renewal Feature: Policyholder has the option to renew a life policy (without evidence of insurability) at the end of its term for an additional period of time at a specified premium.
Renewal Provision: A term life insurance policy provision that gives the policyowner the right, within specified limits, to continue the coverage for an additional policy term without providing evidence of insurability.
Rider: An amendment or addition to a contract that either expands or limits the benefits payable under the contract.
Stock Insurance Company: An insurance company that is owned by the people who purchase shares of the company’s stock.
Surrender: The cancellation of an in force policy by the policyowner. The policyowner receives the full cash surrender value (if applicable) and discharges the insurer of any further obligations.
Surrender Charges: A penalty fee assessed by an insurance company against withdrawals from your annuity’s account value.
Term Life Insurance: A plan of insurance that covers the insured for a designated period of time. The policy pays death benefits if the insured dies during the term. In most cases, term life plans offer no cash value. Term life insurance is usually the lowest cost insurance.
Underwriting (Risk Classification): The process of classifying applicants for insurance by identifying such characteristics as age, gender, health, occupation, hobbies, etc.
Universal Life Insurance: A form of permanent life insurance characterized by flexible premiums, flexible face amounts, and unbundled pricing factors.
Waiver of Premium: A supplemental life insurance policy benefit providing that, in the event of total disability before age 60, after a waiting period of 6 months, premiums for the base coverage will be waived retroactively from the beginning of the disability and will continue to be waived during the continuance of total disability.
Whole Life Insurance: A type of permanent life insurance that provides protection at a level premium and accumulates cash surrender values on a tax-deferred basis.