Life Insurance Glossary | 70+ Terms Defined by a Licensed Broker

63 terms defined

A

Accelerated Death Benefit (ADB)

A rider or policy provision that allows a terminally ill or chronically ill policyholder to receive a portion of the death benefit while still alive. Also called a 'living benefit.' The advance is typically tax-free and reduces the death benefit paid to beneficiaries.

Example: A policyholder diagnosed with a terminal illness with 12 months or fewer to live receives 50% of their $100,000 death benefit early to cover medical costs.

Curtis's Note: Most policies issued today include this as a standard feature at no extra cost. If your policy is older, it may require a rider. Always ask.

See also: Terminal Illness Rider

Accidental Death Benefit (ADB) Rider

An add-on rider that pays an additional death benefit — typically double the face amount — if the insured dies as the direct result of an accident, not illness or natural causes.

Example: A $50,000 policy with an ADB rider pays $100,000 if the insured dies in a car accident, but only $50,000 if they die from a heart attack.

Agent vs. Broker

An insurance agent represents one or a few specific carriers and can only sell those carriers' products. An independent broker represents many carriers and shops the market on your behalf, finding the policy best suited to you regardless of company.

Curtis's Note: I'm an independent broker. That distinction matters — when you call a carrier's 800 number, you're speaking with a captive agent who can only offer that company's products. I have access to 35+ carriers and no obligation to any of them.

See also: About Curtis Drake

Application

The formal document submitted to an insurance company to request coverage. The application includes personal information, health history, lifestyle questions, and coverage amount requested. Answers on the application are used by underwriters to approve, rate, or decline coverage.

Curtis's Note: Never guess on an application. Inaccurate answers — even unintentional ones — can be used to deny a claim during the contestability period. I review every application with clients before it's submitted.

Attained Age

Your current age at the time of application or policy renewal. Many insurers use 'age nearest birthday' rather than your exact age, meaning your rate may increase if your birthday is within 6 months. Distinct from 'issue age,' which is the age at which the policy was originally purchased.

B

Beneficiary

The person, trust, or entity designated to receive the death benefit when the insured dies. A primary beneficiary receives the benefit first. A contingent (secondary) beneficiary receives it only if the primary beneficiary predeceases the insured or cannot be located.

Example: A spouse is named primary beneficiary; adult children are named contingent beneficiaries.

Curtis's Note: Review your beneficiary designations regularly — especially after marriage, divorce, or the birth of a child. Outdated designations are one of the most common and costly mistakes in life insurance.

Binding Receipt

A document issued when you submit an application and pay the first premium, providing temporary coverage while the application is under review. If you die before the policy is formally issued and would have qualified, the benefit is paid.

Burial Insurance

A small whole life insurance policy (typically $5,000–$25,000) designed specifically to cover end-of-life expenses including funeral costs, cremation, burial, and final bills. Also called final expense insurance or funeral insurance. Most burial insurance policies require no medical exam and ask only a few health questions.

See also: Final Expense Insurance

C

Cash Surrender Value (CSV)

The amount of money a policyholder receives if they cancel (surrender) a permanent life insurance policy before death. The CSV equals the policy's accumulated cash value minus any surrender charges. Surrendering a policy terminates coverage permanently.

See also: Cash Value

Cash Value

The savings or investment component inside permanent life insurance policies (whole life, IUL, GUL, universal life). A portion of each premium is allocated to the cash value account, which grows over time — tax-deferred in most cases. Policyholders can borrow against or withdraw from the cash value while alive.

Curtis's Note: Cash value growth rates vary enormously by product type. Whole life grows conservatively and predictably. IUL growth is linked to a market index with caps and floors. Make sure you understand the mechanics before buying.

Contestability Period

The first two years after a life insurance policy is issued, during which the insurer can investigate and potentially deny a death claim if the application contained material misrepresentations. After two years, most policies become incontestable — the insurer cannot deny a claim based on misstatements in the original application.

Curtis's Note: This is why honesty on your application is so critical. If something was left out and you die within two years, the claim can be denied. After two years, that risk is essentially gone.

Conversion Privilege

The right to convert a term life insurance policy to a permanent policy (whole life or universal life) without evidence of insurability — meaning no new health exam or questions. Must typically be exercised before the conversion deadline stated in the policy.

Curtis's Note: This feature is extremely valuable if your health declines during the term period. Always check the conversion deadline before letting it lapse — some policies only allow conversion in the first 10 years.

See also: Term Life Insurance

D

Death Benefit

The lump-sum amount paid to the beneficiary when the insured person dies. Also called the face amount or face value. Death benefits from life insurance are generally income-tax-free to the recipient under federal law.

Declarations Page (Dec Page)

The summary page of a life insurance policy that lists the key details: policyholder name, insured name, policy number, face amount, premium, policy type, effective date, and named beneficiaries. The first thing to review when you receive a new policy.

Disability Waiver of Premium

A rider that waives (eliminates) premium payments if the insured becomes totally disabled and unable to work, for a period typically exceeding 6 months. The policy remains in force without premium payments for the duration of the disability.

See also: Rider

E

Effective Date

The date on which a life insurance policy officially goes into force and coverage begins. Premiums are typically due from this date. Distinct from the application date or the date the policy is delivered.

Evidence of Insurability (EOI)

Documentation — typically a medical exam, health questionnaire, or medical records — that an insurer requires to assess an applicant's health risk before issuing or increasing coverage. Some policy types (guaranteed issue, group coverage) waive EOI entirely.

See also: No Medical Exam Life Insurance

Exclusion

A specific circumstance or cause of death that a policy does not cover. Common exclusions include suicide during the first two years, death during the commission of a felony, and death in a war zone. Always read the exclusions section of any policy.

F

Face Amount

The base death benefit amount stated on the face of the policy — what will be paid to beneficiaries upon the insured's death, before any loans, riders, or adjustments. Also called face value or coverage amount.

Final Expense Insurance

A category of whole life insurance with smaller face amounts (typically $5,000–$25,000) intended to cover end-of-life costs — funeral, cremation, burial, medical bills, and outstanding debts. Usually issued without a medical exam using simplified or guaranteed issue underwriting.

See also: Burial Insurance / Final Expense

Free Look Period

A mandatory period (typically 10–30 days depending on the state) after policy delivery during which the policyholder can review the policy and cancel it for a full premium refund. This is a consumer protection provision required by most states.

Curtis's Note: Use the free look period. Read your policy cover to cover when it arrives. If anything is different from what you were told, call your broker immediately.

G

Grace Period

The period after a premium due date (typically 30–31 days) during which a policyholder can pay an overdue premium without the policy lapsing. If the insured dies during the grace period before payment is made, most policies will still pay the death benefit minus the overdue premium.

Graded Death Benefit

A policy structure where the full death benefit is not available immediately. If the insured dies from natural causes within the first 2 years, the beneficiary typically receives only a return of premiums paid plus interest (usually 10%). After 2 years, the full death benefit pays for any cause of death. Accidental death usually pays the full benefit from day one.

Curtis's Note: Graded benefit policies exist because they cover people carriers consider higher risk — advanced age, serious health conditions, recent hospitalizations. It's not a bad deal: you're still guaranteed coverage. You just have to survive 2 years for full natural-cause coverage.

Guaranteed Issue (GI)

A life insurance policy that accepts all applicants within an eligible age range (typically 45–85) regardless of health status. No medical exam and no health questions are asked. In exchange, coverage amounts are limited (usually $5,000–$25,000), premiums are higher, and a 2-year graded death benefit applies for natural causes.

Curtis's Note: GI is the safety net of burial insurance. It's for people who can't qualify for anything else — advanced illness, dialysis, recent strokes or heart attacks. It's more expensive per dollar of coverage, but it gets the job done.

Guaranteed Renewable

A policy provision guaranteeing the insurance company cannot cancel coverage as long as premiums are paid, regardless of changes in the insured's health. The insurer may still raise rates, but only on an entire class of policyholders — not singled out individuals.

Guaranteed Universal Life (GUL)

A permanent life insurance policy that provides a guaranteed death benefit for life (or to age 90, 95, 100, 121) with fixed, guaranteed premiums — without the investment/savings component of traditional universal life. Often called 'term for life.' Typically the most affordable permanent coverage option.

H

Health Classification

The risk category assigned to an applicant based on their health profile, used to determine premium rates. Common classifications from most to least favorable: Preferred Plus, Preferred, Standard Plus, Standard, Substandard (Table Rated). Final expense carriers often use simpler tiers: Preferred, Standard, Graded, Guaranteed Issue.

Human Life Value

A method of calculating how much life insurance someone needs based on their future earnings potential — the present value of all the income they would have earned if they had lived. A common rule of thumb: 10–12x annual income. Compare to the DIME method (Debt, Income, Mortgage, Education).

I

Illustration

A standardized document provided before purchasing a life insurance policy showing projected premiums, death benefits, and cash value growth over time under different scenarios (guaranteed vs. non-guaranteed). Required by law for most permanent life insurance products. Always ask for the 'guaranteed column' — that's the worst-case scenario.

Indexed Universal Life (IUL)

A type of permanent life insurance where cash value growth is linked to the performance of a stock market index (commonly the S&P 500), subject to a cap (maximum gain) and a floor (usually 0%, meaning no loss in a down market). Premiums are flexible within limits.

See also: Indexed Universal Life Insurance

Insurable Interest

A legal requirement that the policyholder must have a financial or emotional stake in the continued life of the insured person. Without insurable interest, a policy cannot be legally issued. Spouses, parents, children, and business partners generally have insurable interest. Strangers do not.

Irrevocable Beneficiary

A beneficiary designation that cannot be changed without the beneficiary's written consent. The opposite of a revocable beneficiary, which can be changed at any time by the policyholder. Irrevocable designations are common in divorce settlements and business buy-sell agreements.

J

Joint Life Policy

A single policy covering two people (usually spouses or business partners). A 'first-to-die' policy pays out when the first insured dies. A 'second-to-die' (survivorship) policy pays when the second insured dies — commonly used in estate planning to cover estate taxes.

L

Lapse

The termination of a life insurance policy due to non-payment of premiums beyond the grace period. A lapsed policy provides no coverage. Most policies have non-forfeiture options (like reduced paid-up insurance or extended term) that may preserve some benefit after a lapse.

See also: Grace Period

Level Premium

A premium that remains the same throughout the entire policy period — a key feature of most term life policies and all whole life policies. Contrast with increasing premiums, which rise over time (as in annually renewable term).

Level Term Life Insurance

The most common form of term life insurance, in which both the premium and the death benefit remain constant for the entire term (10, 20, or 30 years). The most straightforward, affordable way to buy a large death benefit.

Living Benefits

Policy features or riders that allow a policyholder to access the death benefit while still alive, typically upon diagnosis of a terminal, chronic, or critical illness. The advance reduces the final death benefit paid to beneficiaries. Also refers broadly to any cash value access (loans, withdrawals).

See also: Accelerated Death Benefit (ADB)

M

Material Misrepresentation

A false or misleading statement on a life insurance application that is significant enough to affect the insurer's decision to issue the policy or the premium charged. If discovered during the contestability period, it can result in claim denial or policy rescission.

MIB (Medical Information Bureau)

A non-profit data exchange used by life insurance companies to share coded information about applicants' prior insurance applications, health conditions, and declined applications. Carriers check MIB when underwriting to detect inconsistencies between multiple applications. A declined application at one carrier shows up at others.

Curtis's Note: This is one of the biggest reasons not to apply to the wrong carrier on your own. A declined application stays in MIB for up to 7 years. I pre-qualify clients before submitting any application so we only apply where you'll be accepted.

Modified Benefit Policy

A policy in which the death benefit is reduced or returned as premiums-plus-interest if the insured dies from natural causes within the first 2–3 years. The full benefit applies after the modified period ends. Common in final expense and guaranteed issue policies. Essentially the same as a graded death benefit.

See also: Graded Death Benefit

N

No-Lapse Guarantee (NLG)

A rider or provision in a universal life policy that guarantees the policy will not lapse — regardless of poor cash value performance — as long as the specified premium is paid. Critical feature in Guaranteed Universal Life policies.

Non-Forfeiture Options

The choices available to a permanent life insurance policyholder if they stop paying premiums rather than simply letting the policy lapse. Common options include: (1) Cash Surrender — receive the cash value and terminate coverage, (2) Reduced Paid-Up Insurance — a smaller paid-up policy with no future premiums, or (3) Extended Term — use cash value to buy a term policy for the original face amount.

P

Paid-Up Insurance

A policy on which all required premiums have been paid and no further premiums are due, while coverage remains in force for life. Whole life policies are often designed to be paid up at a specific age (65, 20 pay, 10 pay). Also the result of exercising the reduced paid-up non-forfeiture option.

Permanent Life Insurance

Any life insurance policy designed to provide coverage for the insured's entire lifetime (as opposed to a fixed term). Includes whole life, universal life, indexed universal life, guaranteed universal life, and variable universal life. Most permanent policies include a cash value component.

Policy Loan

A loan taken against the cash value of a permanent life insurance policy. Policy loans are not subject to credit approval, do not appear on credit reports, and have no required repayment schedule. However, unpaid loan balances plus interest reduce the death benefit and, if excessive, can cause the policy to lapse.

Policy Rider

An add-on to a base life insurance policy that modifies or expands coverage. Common riders include: Accelerated Death Benefit, Waiver of Premium, Accidental Death Benefit, Child Term Rider, and Return of Premium. Some riders are included at no cost; others carry additional premiums.

See also: Rider

Premium

The amount paid by the policyholder to the insurance company to maintain coverage. Premiums can be paid monthly, quarterly, semi-annually, or annually (annual typically results in a small discount). Premium amounts are determined at underwriting based on age, health, coverage amount, and policy type.

R

Rated Policy

A policy issued to an applicant at a higher-than-standard premium due to elevated health risk. The surcharge is expressed as a 'table rating' (e.g., Table 2, Table 4 — each table typically represents a 25% premium increase above standard) or a flat extra (an additional dollar amount per thousand of coverage).

Curtis's Note: A rated policy is not a rejection. It's the carrier saying 'yes, but at a higher price.' Sometimes a carrier that rates you will be beaten by a carrier that offers standard rates for your specific condition. Shopping matters.

Reinstatement

The process of restoring a lapsed life insurance policy to active status. Most insurers allow reinstatement within 2–5 years of lapse, but it typically requires paying all overdue premiums with interest and providing evidence of insurability (new health questions or exam).

Return of Premium (ROP)

A term life insurance rider or product type that refunds all premiums paid if the insured outlives the policy term. Effectively a money-back guarantee on term insurance. ROP policies cost significantly more than standard term but can function as a forced savings vehicle.

See also: Return of Premium Term Life

Rider

See Policy Rider. An amendment or addition to a base insurance policy that modifies coverage terms, adds benefits, or restricts coverage for specific situations.

See also: Policy Rider

Risk Classification

The process by which underwriters categorize applicants into risk pools based on health, age, lifestyle, occupation, and other factors to determine premium rates. Applicants placed in better risk classes pay lower premiums; those in higher risk classes pay more or may be declined.

See also: Health Classification

S

Settlement Options

The ways a death benefit can be paid out to beneficiaries: (1) Lump Sum — the entire benefit paid at once, most common and generally income-tax-free; (2) Interest Only — insurer holds the benefit and pays periodic interest; (3) Fixed Period — payments over a specified number of years; (4) Life Income — annuity-style payments for the beneficiary's lifetime.

Simplified Issue

A life insurance underwriting process that uses a short health questionnaire (typically 3–15 yes/no questions) instead of a full medical exam. Applicants who answer 'no' to all disqualifying questions are typically approved immediately. Rates are higher than fully underwritten policies but lower than guaranteed issue.

Curtis's Note: Most burial insurance and final expense policies are simplified issue. The questions vary significantly by carrier — what one carrier declines, another may accept. This is exactly why a broker who knows each carrier's questions matters.

Surrender Charge

A fee deducted from the cash value when a policyholder cancels (surrenders) a permanent life insurance policy, particularly in the early years of the policy. Surrender charges typically start high (8–10% in year one) and decrease to zero over a 7–15 year period.

T

Term Life Insurance

Life insurance that provides a death benefit for a specified period (the 'term' — typically 10, 20, or 30 years). If the insured dies during the term, the death benefit is paid. If the insured outlives the term, coverage ends with no payout (unless a Return of Premium rider was included). Term is the most affordable type of life insurance.

Terminal Illness Rider

A rider allowing the insured to access a portion of the death benefit (often 25–75%) if diagnosed with a terminal illness with a life expectancy of 12–24 months or less. The advance is deducted from the death benefit eventually paid to beneficiaries. Usually included at no extra charge in modern policies.

See also: Accelerated Death Benefit (ADB)

Two-Year Waiting Period

A standard feature of guaranteed issue life insurance policies stating that if the insured dies from a natural (non-accidental) cause within the first 2 years of the policy, the death benefit paid is limited to a return of premiums paid plus interest. After 2 years, the full death benefit pays for any cause of death. Accidental death typically pays the full amount from day one.

Curtis's Note: The 2-year waiting period is not a gotcha — it's the tradeoff that allows carriers to insure people with serious health conditions at all. If you have a terminal diagnosis, start the clock as early as possible.

See also: Graded Death Benefit

U

Underwriting

The process by which an insurance company evaluates an applicant's risk to decide whether to issue a policy, and at what premium rate. Underwriters assess medical history, prescription records (via MIB and IntelliScript), lifestyle factors, age, and coverage amount. Underwriting can be fully underwritten (medical exam required), simplified issue (health questions only), or guaranteed issue (no health assessment).

Curtis's Note: Different carriers have different underwriting philosophies for the same condition. Carrier A may decline a diabetes diagnosis at a specific age; Carrier B may offer Standard rates for the exact same person. Knowing those differences is what makes a seasoned broker valuable.

Universal Life Insurance (UL)

A flexible permanent life insurance policy that allows the policyholder to adjust the premium amount and death benefit within certain limits. A portion of each premium funds the cost of insurance; the remainder earns interest and builds cash value. Unlike whole life, UL premiums are not fixed — underfunding can cause the policy to lapse.

W

Waiting Period

See Two-Year Waiting Period. Also used to describe the period before a disability waiver of premium or other rider benefit activates.

See also: Two-Year Waiting Period

Waiver of Premium

A rider that waives (cancels) the obligation to pay premiums if the insured becomes totally disabled and unable to work, typically after a 6-month elimination period. The policy remains in force with all benefits intact. Available as an add-on rider on most term and permanent policies.

See also: Disability Waiver of Premium

Whole Life Insurance

A type of permanent life insurance that provides lifetime coverage with a level, guaranteed premium that never changes. Part of each premium builds cash value that grows at a guaranteed rate. Dividends may be paid on participating policies. The most predictable and conservative form of permanent life insurance.

Curtis's Note: Whole life is the 'buy it and forget it' permanent policy. The premium is fixed for life, the death benefit is guaranteed, and the cash value grows on a guaranteed schedule. It's not the highest-growth product, but it's the most reliable.

See also: Whole Life Insurance Policy