The world of life insurance has its own dictionary and sifting through the jargon can feel overwhelming. That’s why we are here to spell out for you in a way you understand. When applying for term life insurance, you’re likely to come across the following terms.
(Could also be called Duration of Coverage, Length of Coverage, Policy Term)
Term is a guaranteed length of time.
When referring to life insurance, your term is the length of time your policy will stay in force as long as you continue making the premium payments. At the end of the term, you can either extend, renew, or convert your coverage, depending on your policy.
(Could also be called Face Amount, Policy Value, Payout Amount, Face, Proceeds)
The death benefit is the amount of money those you designate as beneficiaries will receive when you die. You select how much coverage (the death benefit) you want your policy to provide.
(Could also be called Payment, Cost, Price)
Premium is the amount of money you will have to pay for your insurance policy. Premiums can be paid in multiple frequencies such as monthly, quarterly, semi-annually, or annually.
Beneficiary is the word used for the entity or person that will receive the payout of your face amount if you died.
A beneficiary can be one person, like a spouse or child, or multiple people, given different percentages of the face amount until 100 percent of the death benefit is accounted for. A beneficiary can also be an organization or a charity that would receive the money from your life insurance policy when you die.
(Could also be called Secondary Beneficiary, Other Beneficiary)
Contingent beneficiary is the second person or entity you name to receive your life insurance payout when you die if the primary beneficiary cannot.
Insurable interest is required when buying life insurance on another person.
This situation exists when one individual can prove that the death of another individual would affect the person financially.
For example, spouses typically rely on one another’s income. One spouse has an insurable interest on the other spouse. Your neighbor does not depend on your income, therefore, he or she does not have an insurable interest and could not purchase life insurance on you.
Inforce means the life insurance policy is active. If the insured dies while the policy is inforce, the insurance company pays a death benefit to the policy’s beneficiary.
The contestability period is the time in which the insurance company has a right to investigate and dispute the validity of statements made on the application if the insured dies during this time. If misrepresentations are discovered, the insurance company can make a case against paying the death benefit claim.
The contestability period typically lasts two years and begins immediately when you first purchase the life insurance policy.
Material misrepresentation is a factually incorrect statement, whether made intentionally or not, on a life insurance application. If material representations are discovered during the contestability period after a death benefit claim is made, the insurance company has the right to deny payment.
Free Look Period
When you buy a life insurance policy, the policyowner has a free look period to review the policy and return it for a full refund if they decide they no longer want the coverage. This period is usually 30 days.
The grace period is a length of time between the policy’s premium due date and the date the policy will lapse if the premium goes unpaid. This period is usually 30 days. If the insured dies during this period, the death benefit (minus the unpaid premium) will still be paid to the beneficiaries.
(Could also be called Rate Class, Classification, UW Class, Health Classification)
Risk class is the health classification the insurance companies place you in for pricing purposes based on your height and weight, tobacco use, family health history, and your personal medical history.
The insurance company essentially determines how much of a risk you would be to insure and then assigns you to a risk class accordingly—this process is called underwriting.
If you are a tobacco user, you will most likely be given a tobacco risk class—which come with higher premium pricing than their non-tobacco counterparts. Some insurance companies are more lenient with certain types of tobacco use, like celebratory cigar use or chewing tobacco.
Sometimes different insurance companies have different names for the same risk class. Below are examples of different ways these companies name their classifications.
- (Best) Preferred Plus Non Tobacco is the same as Preferred Best Non Tobacco, Super Preferred Non Tobacco, Preferred Elite Non Tobacco, Select Preferred Non Tobacco, and Premier Non Tobacco: the name simply depends which life insurance company is being worked with.
- (Second Best) Preferred Non-Tobacco, Preferred Best Non-Tobacco, Super Preferred Non-Tobacco, Elite Non-Tobacco
- (Third Best) Standard Plus Non-Tobacco, Preferred Non-Tobacco, Select Non-Tobacco, Super Standard Non-Tobacco
- (Fourth Best) Standard Non Tobacco, Non Tobacco
Tobacco Risk Classes:
- (Fifth Best) Preferred Tobacco
- (Sixth Best) Standard Tobacco, Tobacco, Tobacco Standard
Substandard Risk Class
When a proposed insured is considered by the life insurance company to be high risk, he or she may be classified as substandard risk. Substandard risk offers often include either table rating an applicant or adding a flat extra to the premium.
A table rating requires a policyowner to pay a certain percentage on top of the standard rate.
A flat extra is an extra dollar amount per $1,000 of insurance coverage a policyowner may be required to pay to cushion extra risk the carrier takes on.
Rider is a term used for any additional benefits or options you can add on to your policy. For example, a waiver of premium rider is an additional feature you can add to your policy to relieve you of your payments if you become disabled and can’t work.
Underwriting is the process of reviewing your application based on guidelines set by each insurance company, ultimately to determine your final price and risk to the insurance company you choose. Underwriting for life insurance usually consists of reviewing your answers to health questions, your height and weight, the results from a medical exam, driving record, and financial history.
Understanding every term life insurance definition is the first step toward getting the coverage you need.
Trust the experts at Quotacy to provide you with accurate term life insurance quotes to help you make the best decision for your family.
» Learn more: Term Life Insurance Terminology and FAQs
About the writer
Natasha Cornelius, CLU
Senior Editor and Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.