Life insurance comes with its own language—terms like “underwriting,” “riders,” “convertible,” and “cash value” that can be confusing and intimidating. This comprehensive glossary explains the 44 most important life insurance terms in plain English, organized by category for easy reference. Whether you’re shopping for your first policy or reviewing existing coverage, understanding these definitions will definitely help you make informed decisions and avoid costly mistakes.
💡 How to Use This Glossary
Terms are organized into logical categories. Click a category in the table of contents to jump directly to those definitions, or scroll through all 44 terms. Each definition includes the term, a clear explanation, and often an example showing how it applies in real situations.
Total Terms Covered
Categories
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Real Examples
Basic Concepts (9 Terms)
Foundational Terms Everyone Should Know
These are the core concepts that form the basis of all life insurance. Understanding these terms is essential before exploring more complex insurance topics.
1. Policyholder (Policy Owner)
Definition: The person or entity that owns the life insurance policy, pays the premiums, and has the right to make changes to the policy, including changing beneficiaries, borrowing against cash value, or canceling the policy.
Example: You buy a life insurance policy on yourself. You are both the policyholder and the insured. Alternatively, a parent might be the policyholder on a policy insuring their child.
2. Insured
Definition: The person whose life is covered by the insurance policy. When this person dies, the death benefit is paid to the beneficiaries. The insured and the policyholder are often the same person, but not always.
Example: A business owns a policy insuring a key employee. The employee is the insured, but the business is the policyholder and beneficiary.
3. Death Benefit (Face Amount)
Definition: The amount of money that will be paid to beneficiaries when the insured person dies. This is typically tax-free to beneficiaries. The death benefit is stated in the policy as the face amount or coverage amount.
Example: You purchase a $500,000 life insurance policy. When you die, your beneficiaries receive $500,000 (assuming premiums are current and there are no outstanding loans against the policy).
4. Premium
Definition: The amount you pay regularly (monthly, quarterly, annually) to keep the life insurance policy in force. Premiums can be level (stay the same) or increase over time, depending on policy type.
Example: Your 20-year term life insurance policy costs $45 per month. That $45 is your premium. If you stop paying, the policy will lapse after a grace period.
5. Beneficiary
Definition: The person, people, or entity designated to receive the death benefit when the insured dies. You can name primary beneficiaries (first in line) and contingent beneficiaries (who receives money if primary beneficiaries are deceased).
Example: You name your spouse as the primary beneficiary and your two children as contingent beneficiaries. If your spouse is alive when you die, they get 100%. If your spouse has predeceased you, your children split the benefit.
6. Grace Period
Definition: A short period (typically 30-60 days) after a missed premium payment during which the policy remains in force. If you pay the overdue premium during the grace period, your coverage continues uninterrupted. If not, the policy lapses.
Example: Your premium is due January 1st, but you don’t pay until January 25th. Because you’re within the 30-day grace period, your coverage never lapse,d and you face no penalties beyond paying the overdue premium.
7. Lapse
Definition: When a life insurance policy terminates because premiums were not paid. After the grace period expires without payment, the policy lapses and coverage ends. With term insurance, you lose all money paid. Some permanent policies may have options to prevent lapse.
Example: You miss three monthly premium payments and don’t respond to insurer notices. After the grace period, your policy lapses, coverage ends, and you’ve lost all premiums paid on that policy.
8. Insurable Interest
Definition: A legal requirement that the person purchasing life insurance must have a legitimate reason to insure someone’s life—typically, a financial loss would occur if that person died. This prevents people from buying policies on strangers for profit.
Example: You have insurable interest in yourself (unlimited), your spouse (financial interdependency), your children (funeral costs, emotional), and your business partner (financial loss if they die). You do NOT have insurable interest in a random celebrity.
9. Contestability Period
Definition: The first two years after a policy is issued, during which the insurance company can investigate claims and deny payment if they discover material misrepresentations on the application (like undisclosed health conditions or smoking status).
Example: You die 18 months after getting a policy. The insurer investigates and discovers you failed to disclose a heart condition on your application. They can deny the claim and refund premiums. After two years, this becomes much harder for insurers to do.
Policy Types (6 Terms)
Different Types of Life Insurance Policies
Life insurance comes in several forms, each with different features, costs, and purposes. Understanding these types helps you choose the right coverage.
10. Term Life Insurance
Definition: Life insurance that provides coverage for a specific period (term) such as 10, 20, or 30 years. If you die during the term, beneficiaries receive the death benefit. If the term expires and you’re still alive, coverage ends with no payout. Generally, the most affordable type.
Example: You buy a 20-year, $500,000 term policy at age 35. If you die anytime before age 55, your family gets $500,000. If you’re still alive at 55, the policy expires, and you receive nothing back.
11. Permanent Life Insurance
Definition: Life insurance that remains in force for your entire life (as long as premiums are paid) and typically includes a cash value component that grows over time. More expensive than a term but never expires. Includes whole life, universal life, and variable life.
Example: You buy a $100,000 whole life policy at age 40. As long as you pay premiums, it covers you whether you die at 50, 70, or 100. The policy also builds cash value you can borrow against.
12. Whole Life Insurance
Definition: A type of permanent insurance with fixed premiums, guaranteed death benefit, and guaranteed cash value growth. Premiums never increase, cash value grows at a predetermined rate, and coverage lasts your entire life. Most predictable but also most expensive.
Example: You pay $200/month for a $250,000 whole life policy. That premium never changes. The cash value grows according to a schedule in your contract, and coverage lasts as long as you live and pay premiums.
13. Universal Life Insurance
Definition: Flexible permanent life insurance where you can adjust premium payments and death benefits (within limits). Cash value growth depends on interest rates set by the insurance company. More flexibility than whole life, but less predictable.
Example: You have the flexibility to pay $150-$300/month in premiums, depending on your budget. You can increase or decrease the death benefit (with underwriting). Cash value grows based on current interest rates.
14. Guaranteed Issue Life Insurance
Definition: Life insurance that accepts all applicants regardless of health—no medical exam, no health questions. Cannot be denied for any reason. However, it’s very expensive, has low coverage limits ($5,000-$25,000), and usually includes a 2-3 year waiting period where only premiums are refunded if you die.
Example: You’re 70 with serious health conditions and can’t qualify for traditional insurance. You buy guaranteed issue for $15,000 coverage at $120/month. If you die in year 1, your family only gets premiums back. Full benefit paid after year 2-3.
15. Final Expense Insurance
Definition: Small permanent life insurance policies (typically $5,000-$25,000) designed specifically to cover funeral, burial, and final medical expenses. Easier to qualify for than traditional life insurance, with simplified underwriting. Also called burial insurance.
Example: You buy a $15,000 final expense policy at age 68 for $85/month. When you die, your family uses the $15,000 to pay for the funeral ($8,000) and the remaining medical bills ($7,000).
Underwriting & Health Terms (7 Terms)
The Application and Approval Process
These terms relate to how insurance companies evaluate your application and determine whether to approve you and at what premium rate.
16. Underwriting
Definition: The process insurance companies use to evaluate your application, assess your risk of death, and determine whether to approve your application and at what premium rate. Underwriters review medical history, current health, lifestyle, occupation, and other risk factors.
Example: After you apply, an underwriter reviews your medical records, exam results, and prescription history. They classify you as “Preferred Plus” (healthiest, lowest rates) or a lower health class based on findings.
17. Medical Exam (Paramedical Exam)
Definition: A basic health screening required for most life insurance policies, typically performed by a mobile examiner who comes to your home or workplace. Includes height, weight, blood pressure, blood test, urine test, and basic health questions. Usually paid for by the insurance company.
Example: The insurer schedules an examiner to meet you at 7am before you’ve eaten. They take your blood pressure (checking for hypertension), draw blood (checking cholesterol, diabetes, other markers), collect urine (checking for drugs, nicotine), and ask about medications.
18. Health Classification (Rating Class)
Definition: Categories used by insurers to classify applicants based on health and lifestyle, which determine premium rates. Common classes: Preferred Plus (best health, lowest rates), Preferred, Standard Plus, Standard, and Table Rated (higher risk, higher premiums). Each class pays different premiums.
Example: Two 40-year-olds apply for the same policy. Person A (non-smoker, excellent health, normal weight) gets Preferred Plus at $50/month. Person B (overweight, high blood pressure, family heart disease history) gets Standard at $85/month.
19. Table Rating (Flat Extra)
Definition: When an applicant has health conditions or high-risk factors, insurers may approve them at increased premium rates above standard classes. Table ratings add a percentage (25%, 50%, 75%, etc.) to premiums. Flat extras add a fixed dollar amount per $1,000 of coverage.
Example: You have controlled diabetes. Instead of denial, you’re approved with a Table 2 rating (50% surcharge). Your premium is $100/month instead of the standard $67/month. Or you might get a flat extra of $2.50 per $1,000 of coverage.
20. Exclusion (Impairment Rider)
Definition: A condition written into the policy that excludes coverage for death resulting from specific causes or activities. For example, if you have a pre-existing condition, the insurer might exclude death from that condition for a certain period or permanently.
Example: You have a history of heart issues. The insurer approves you but adds an exclusion: if you die from heart-related causes within 5 years, no death benefit is paid. After 5 years, full coverage applies, including heart-related deaths.
21. Attending Physician Statement (APS)
Definition: Medical records requested by the insurance company from your doctors to verify health conditions, treatment history, and prognosis. The insurer may request these if your application reveals health issues or if you’re applying for a large coverage amount.
Example: You disclosed having been treated for high blood pressure. The insurer requests records from your primary care physician covering the last 5 years to verify that the condition is controlled with medication and determine the appropriate rating.
22. Simplified Issue
Definition: Life insurance that doesn’t require a medical exam—only health questions on the application. Approval is based on your answers and sometimes a prescription drug check. Faster approval but typically higher premiums than fully underwritten policies and lower coverage limits.
Example: You answer 10-15 health questions online about major conditions, surgeries, and medications. No exam needed. Approved within days for up to $250,000-$500,000 coverage, but at rates 20-30% higher than if you took an exam.
Financial Terms (6 Terms)
Money and Value Components
These terms relate to the financial aspects of life insurance beyond the basic death benefit, particularly important for permanent policies.
23. Cash Value
Definition: A savings component within permanent life insurance policies that grows over time. You can borrow against it, withdraw from it (with consequences), or surrender the policy for this amount. Term insurance has no cash value. Cash value grows tax-deferred.
Example: After 15 years of paying premiums on your whole life policy, it has accumulated $35,000 in cash value. You can borrow this money, withdraw some of it, or if you cancel the policy, receive the cash surrender value.
24. Cash Surrender Value
Definition: The amount you receive if you cancel (surrender) a permanent life insurance policy. It’s the cash value minus any surrender charges or fees. In early years, surrender charges can be substantial, so the cash surrender value may be much less than the total premiums paid.
Example: Your policy has $20,000 cash value, but you’re in year 7 with a 15% surrender charge. If you cancel, you receive $17,000 (cash surrender value). After surrender charge periods end (typically 10-15 years), the cash value equals the cash surrender value.
25. Policy Loan
Definition: Money you borrow from your own permanent life insurance policy’s cash value. No credit check required, and you’re not required to pay it back. However, unpaid loans reduce the death benefit, and interest accumulates on the loan balance. The loan is repaid from death benefit proceeds.
Example: You borrow $15,000 from your policy’s cash value at 5% interest. You don’t repay it. When you die, the death benefit is reduced by the loan balance plus accumulated interest. If the loan grows too large, your policy could lapse.
26. Dividends (Participating Policy)
Definition: Payments made by mutual insurance companies to policyholders from the company’s profits. Not guaranteed, but many mutual companies have paid them consistently. You can take dividends as cash, use them to reduce premiums, buy additional coverage, or let them accumulate with interest.
Example: Your whole life policy from a mutual company pays $300 in dividends this year. You choose to use it to buy $5,000 of additional paid-up insurance, increasing your death benefit without increasing premiums.
27. Paid-Up Insurance
Definition: Permanent life insurance where all required premiums have been paid and no further payments are needed. The policy remains in force for life with a guaranteed death benefit. You can also use policy dividends or cash value to purchase small amounts of “paid-up additions” that increase the death benefit.
Example: You finish paying premiums on your 20-pay whole life policy after 20 years. It’s now paid-up—coverage continues for life with no more premiums. Or you use annual dividends to buy $2,000 paid-up additions each year, slowly increasing your coverage.
28. Non-Forfeiture Options
Definition: Options available if you stop paying premiums on a permanent policy with cash value. Instead of losing everything, you can: (1) take the cash surrender value, (2) use cash value to buy reduced paid-up insurance (smaller death benefit, no more premiums), or (3) buy extended term insurance (same death benefit for a limited time).
Example: You can’t afford premiums on your $100,000 whole life policy with $15,000 cash value. Option 1: Take $15,000 cash. Option 2: Convert to $35,000 paid-up policy (no more premiums, lifetime coverage). Option 3: Keep $100,000 coverage for 8 more years with no premiums.
Beneficiary & Ownership Terms (5 Terms)
Who Owns the Policy and Gets the Money
These terms define the relationships between the policy owner, insured person, and beneficiaries, and how designations work.
29. Primary Beneficiary
Definition: The first person(s) in line to receive the death benefit. You can name one person to receive 100%, or multiple people with specified percentages (e.g., spouse 60%, two children 20% each). If all primary beneficiaries are deceased, payment goes to contingent beneficiaries.
Example: You name your spouse as the primary beneficiary for 100%. When you die, if your spouse is alive, they receive the entire death benefit. Your children receive nothing unless your spouse has also died.
30. Contingent Beneficiary (Secondary Beneficiary)
Definition: Backup beneficiaries who receive the death benefit only if all primary beneficiaries have died before the insured. Acts as a safety net to ensure money goes to intended recipients rather than your estate if the primary is deceased.
Example: Primary beneficiary is your spouse, contingent beneficiaries are your three children (33.3% each). If your spouse dies before you, your children split the death benefit equally when you die.
31. Revocable Beneficiary
Definition: A beneficiary designation that can be changed by the policy owner at any time without permission from the beneficiary. This is the default and most common type. The policy owner retains full control to change beneficiaries, borrow from the cash value, or make other policy changes.
Example: You name your sister as a beneficiary. Five years later, you get married and want to change the beneficiary to your spouse. With a revocable designation, you simply submit a form—your sister’s permission is not required.
32. Irrevocable Beneficiary
Definition: A beneficiary designation that cannot be changed without the beneficiary’s written consent. The beneficiary has legal rights to the death benefit. Also limits your ability to borrow from the cash value or make policy changes without beneficiary approval. Rare and usually used in specific legal situations like divorce settlements.
Example: Your divorce decree requires you to maintain life insurance with your ex-spouse as irrevocable beneficiary for child support. You cannot change this beneficiary or cancel the policy without court approval and your ex-spouse’s consent.
33. Per Stirpes
Definition: A beneficiary designation method where if a beneficiary dies before you, their share passes to their descendants (children) rather than to other named beneficiaries. Ensures the deceased beneficiary’s family line still receives their intended share. Opposite of “per capita,” where the share is divided among surviving beneficiaries.
Example: You name three children as equal beneficiaries (33.3% each) per stirpes. If one child predeceases you, that child’s 33.3% share goes to their own children (your grandchildren) rather than being split between your two surviving children.
Riders & Add-ons (5 Terms)
Optional Coverage Enhancements
Riders are optional features you can add to a life insurance policy for an additional cost. They provide extra benefits or flexibility beyond the base policy.
34. Waiver of Premium Rider
Definition: A rider that waives (pays) your life insurance premiums if you become totally disabled and unable to work. Keeps your policy in force during disability without you having to pay. Usually has a 6-month waiting period and requires you to be disabled before age 60-65.
Example: You become disabled at age 45 and can’t work. After 6 months, the waiver activates—the insurance company pays your premiums, keeping your $500,000 policy in force until you turn 65 or recover, whichever comes first.
35. Accelerated Death Benefit Rider
Definition: Allows you to access part of your death benefit early if diagnosed with a terminal illness (typically less than 12-24 months to live). Money can be used for medical care, hospice, or any purpose. Reduces the death benefit paid to beneficiaries by the amount you access, plus interest/fees.
Example: You’re diagnosed with terminal cancer with 6 months to live. Your $300,000 policy allows you to access up to 75% ($225,000) to pay for experimental treatment and hospice. Your beneficiaries will later receive $75,000 when you die.
36. Guaranteed Insurability Rider
Definition: Gives you the right to purchase additional life insurance at specific times (marriage, birth of a child, certain ages) without medical underwriting—even if your health has deteriorated. Locks in insurability at your original health status. The amount you can add is limited in the rider.
Example: You buy a policy with this rider at age 25 in perfect health. At age 32, you’ve developed diabetes but want more coverage. The rider lets you add $100,000 at standard rates based on your age, ignoring the diabetes.
37. Term Conversion Rider (Convertible Term)
Definition: Allows you to convert your term life insurance to permanent life insurance without a medical exam, regardless of health changes. Usually, one must convert before a certain age (often 65-70) or before the term ends. New permanent policy premiums are based on your age at conversion.
Example: You have a 30-year term policy. At year 15, you develop a serious health condition but want lifetime coverage. You exercise the conversion right, switching to whole life at current age-based rates, no medical exam needed.
38. Accidental Death Benefit Rider (Double Indemnity)
Definition: Pays an additional death benefit (often equal to the base policy, hence “double indemnity”) if death results from an accident rather than illness. Has strict definitions of accidental death and numerous exclusions. Generally, it is not recommended as families need money regardless of how you die.
Example: Your $250,000 policy has this rider. If you die in a car accident at age 50, beneficiaries receive $500,000. If you die from cancer, they receive $250,000. Rider typically expires at age 65-70.
Claims & Payouts (4 Terms)
What Happens When Someone Dies
These terms relate to the death claim process and how beneficiaries receive the life insurance proceeds.
39. Death Claim
Definition: The formal request by beneficiaries for payment of the life insurance death benefit after the insured dies. Requires submission of a certified death certificate and claim forms to the insurance company. Most claims are processed within 30-60 days if all documentation is complete.
Example: After your death, your spouse contacts the insurance company, completes claim forms, provides a certified death certificate, and proof of identity. The insurer verifies information and issues payment within 30-45 days.
40. Settlement Options
Definition: Different ways beneficiaries can receive the death benefit instead of a lump sum. Options include: installment payments over time, life income (annuity), interest-only (death benefit stays with insurer earning interest), or specific period payments. Most beneficiaries choose a lump sum.
Example: Instead of taking $500,000 lump sum, your spouse chooses the life income option, receiving approximately $2,500/month for the rest of their life. Or they choose a 20-year period, certain, receiving $2,900/month for exactly 20 years.
41. Incontestability Clause
Definition: A provision stating that after the policy has been in force for two years, the insurance company cannot contest the validity of the policy or deny a claim based on misstatements in the application (except for fraud). After two years, coverage is essentially guaranteed regardless of application errors.
Example: You inadvertently failed to disclose a minor health condition when applying. You die in year 3. Because the incontestability period has passed, the insurer cannot deny the claim based on this omission and must pay the full benefit.
42. Suicide Clause
Definition: A standard provision that limits or eliminates the death benefit if the insured dies by suicide within the first two years of the policy. Most policies refund premiums paid but don’t pay the full death benefit for suicide during this period. After two years, suicide is covered like any other death.
Example: A person dies by suicide 18 months after buying a $500,000 policy. The insurer returns the $4,000 in premiums paid but doesn’t pay the $500,000 death benefit. If death occurred in year 3, full benefit would be paid.
Special Situations (2 Terms)
Unique Policy Features and Situations
These final terms cover special circumstances and features that apply in specific situations.
43. Viatical Settlement
Definition: Selling your life insurance policy to a third party when you’re terminally ill. You receive a percentage of the death benefit (typically 50-80%) in cash now. The buyer becomes the new owner/beneficiary, pays remaining premiums, and collects the full death benefit when you die. Also called life settlement when not terminally ill.
Example: You’re terminally ill with a $500,000 policy but need money for medical care. A viatical settlement company buys your policy for $350,000 cash. They take over premium payments and receive the $500,000 when you die. Your original beneficiaries get nothing.
44. Reinstatement
Definition: The process of restoring a lapsed life insurance policy to active status. Requires paying all back premiums plus interest, and often requires new evidence of insurability (medical exam, health questions). Must usually be done within 3-5 years of lapse. Not guaranteed—the company can decline based on health.
Example: You let your policy lapse 18 months ago. You want coverage back, but are now older, and your health has declined. You request reinstatement—must pay $1,500 in back premiums plus undergo a medical exam. If approved, the policy is reinstated with the original premiums.
Master These Terms for Informed Decisions
Understanding these 44 essential life insurance terms empowers you to make better decisions when shopping for coverage, reviewing existing policies, or discussing options with agents. Don’t be intimidated by insurance jargon—armed with these definitions, you can confidently evaluate policies and ask the right questions.
Quick Reference Checklist
✓ Basic Concepts: 9 terms
✓ Policy Types: 6 terms
✓ Underwriting: 7 terms
✓ Financial Terms: 6 terms
✓ Beneficiary: 5 terms
✓ Riders: 5 terms
✓ Claims: 4 terms
✓ Special Cases: 2 terms
✓ Total Coverage: 44 definitions
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Disclaimer: This glossary provides general definitions of common life insurance terms for educational purposes only and does not constitute insurance, financial, legal, or tax advice. Actual policy provisions, terms, definitions, and features vary significantly by insurance company, policy type, state regulations, and individual circumstances. The definitions provided represent general industry usage and may differ from specific policy language in your contract. Always read your actual policy documents carefully, as the specific terms and conditions in your policy contract govern your coverage. Some terms may have different meanings or applications in different contexts or jurisdictions. Insurance products, riders, and features mentioned may not be available in all states or from all insurance companies. This content does not guarantee the availability of any specific policy feature, rider, or benefit. For questions about specific policy terms, features, or definitions as they apply to your situation, consult with licensed insurance professionals, financial advisors, and legal counsel. Policy illustrations, examples, and scenarios are simplified for educational purposes and may not reflect all possible situations or outcomes. State insurance regulations vary and may affect how these terms apply in specific jurisdictions.
