Whole Life Insurance Terminology
Accelerated Death Benefit Rider – An accelerated death benefit rider allows a portion of the policy’s death benefit to be claimed early if the insured individual is diagnosed with a terminal illness.
Accidental Death Benefit Rider – An accidental death benefit rider pays additional money to a policy’s beneficiary if the insured dies as the result of an accident. Also referred to as a double indemnity rider.
Actual Age – Actual age is one of two ways in which life insurance companies determine an insured’s age. Actual age is based on your last birthday. Can also be referred to as Attained Age.
Actuary – An actuary is a person who analyzes statistics to determine risks the insurance company can take and what premiums to charge.
Agent – An agent assists the life insurance applicant through the insurance buying process.
Applicant – The applicant is the individual applying for a life insurance policy.
Attending Physician’s Statement (APS) – Health information provided by the proposed insured’s doctors. APSs are used by the life insurance company underwriters to determine appropriate risk classification.
Avocation – An avocation is a hobby an individual participates in.
Backdating – Backdating is when your birthday passes during the life insurance buying process and the insurance company lets you lock in pricing based on the age you were when you applied. Also referred to as Saving Age.
Beneficiary – The beneficiary is a person or entity that receives a payout when/if the insured dies.
Broker – Brokers represents clients during the life insurance buying process. Not contracted through any one insurance company but has access to multiple insurance companies.
Burial Insurance – A life insurance policy designed to provide just enough coverage to pay funeral and burial expenses.
Buy-Sell Agreement – A buy-sell agreement is a written legal contract between two parties, the entity and the owners or between the owners themselves, which states the buyout details of the owner’s interest in the business if the owner leaves the business.
Carrier – The life insurance carrier is responsible for financially managing the shared pool of life insurance money available for pay out if the insured dies. Also referred to as the life insurance company or insurer.
Cash Value – Cash value is a feature of some permanent life insurance policies. A portion of your paid premiums are invested by the insurance company earning interest over time. Cash value can be accessed by the policyowner via policy loans, withdrawals, or surrendering the policy for cash.
Child Rider – A child rider is an optional add-on to a parent’s life insurance policy that provides life insurance coverage on dependent, minor children.
Claim – A claim is a request to the insurance company to pay a benefit.
Collateral Assignment – A collateral assignment is an agreement between the policyowner and assignee to use the value of a life insurance policy to pay the balance of a loan.
Company Ratings – Company ratings reflect the financial strength of an insurance company and overall performance. Ratings are determined by independent agencies such as A.M. Best, Moody’s, and Standard and Poor’s.
Contestability Period – A contestability period begins on the issue date of a life insurance policy and lasts usually around two years. Insurance companies have the right to investigate and dispute the validity of statements made on the application during this period.
Contingent Beneficiary – The contingent beneficiary is a backup person or entity you name to receive the policy’s death benefit if the primary beneficiary cannot. Also referred to as secondary beneficiary and other beneficiary.
Convertible Term Life Insurance – Having a convertible term life insurance policy means that the policyowner can change their term policy into a permanent policy during a specified period of time without having to prove insurability or take a second medical exam.
Coverage Amount – The coverage amount is the dollar amount an individual is insured for. The insurance company pays this amount to the policy’s beneficiary when/if the insured dies. Also referred to as death benefit, face amount, payout amount, and proceeds.
Death Benefit – The death benefit is the dollar amount an individual is insured for. The insurance company pays this amount to the policy’s beneficiary when/if the insured dies. Also referred to as coverage amount, face amount, payout amount, and proceeds.
Electronic Funds Transfer (EFT) – An EFT setup is when policy premiums are withdrawn automatically from a bank account. Also referred to as auto-draft and pre-authorized check (PAC).
Evidence of Insurability – Evidence of insurability is part of the application process when an applicant provides proof he or she is in good health.
Face Amount – The face amount is the dollar amount an individual is insured for. The insurance company pays this amount to the policy’s beneficiary when/if the insured dies. Also referred to as death benefit, coverage amount, payout amount, and proceeds.
Final Expense Life Insurance – Final expense life insurance is a type of life insurance that provides guaranteed coverage without requiring evidence of insurability. The coverage amounts are often limited providing only enough benefits to cover funeral and end-of-life expenses. Also referred to as guaranteed issue life insurance, guaranteed whole life insurance, funeral insurance, and burial insurance.
Flat Extra – A flat extra is an extra dollar amount per $1,000 of insurance coverage that a policyowner is required to pay to cover extra risk often associated with an avocation or occupation.
Free Look Period – A free look period is the length of time (usually 10 to 30 days) a policyowner has to examine his or her new policy and return it for a full refund if not satisfied.
Funeral Insurance – Funeral insurance is often confused with final expense life insurance. Funeral insurance is pre-paying your funeral expenses. Upon your death, the policy proceeds go to a funeral service provider you chose. Also referred to as guaranteed issue life insurance, guaranteed whole life insurance, final expense life insurance, and burial insurance.
Grace Period – The grace period is a length of time between the policy’s premium due date and the date the policy will lapse if 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.
Guaranteed Issue Life Insurance – Guaranteed issue life insurance is a type of life insurance you can’t be denied coverage for and there are no medical exams required. Also referred to as guaranteed whole life insurance, final expense life insurance, funeral insurance, and burial insurance.
Guaranteed Universal Life Insurance (GUL) – Guaranteed universal life insurance functions similar to term life insurance because you pay a level premium but you can have it last your entire lifetime.
Hazardous Activities – Regularly participating in activities that are deemed hazardous the insurance company can increase your life insurance premiums or make you ineligible for coverage. Hazardous activities include scuba diving, rock climbing, and skydiving.
Incontestability Clause – An incontestability clause is included in every life insurance policy and states that the insurance company has a specified period of time, typically two years, to investigate and dispute the validity of statements made on an application.
Insurability – Insurability is approval of an applicant to be able to get life insurance coverage. Insurance company determines this through the underwriting process.
Insurable Interest – 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.
Insurance Company – The insurance company is responsible for financially managing the shared pool of life insurance money available for pay out if the insured dies. Also referred to as the insurer or carrier.
Insured – The individual whose life is covered by life insurance.
Insurer – The insurer is responsible for financially managing the shared pool of life insurance money available for pay out if the insured dies. Also referred to as the life insurance company or carrier.
Key Person Insurance – Key person insurance is a life insurance policy on a person important to a company’s future success.
Lapse – A lapse is when a life insurance policy terminates because premiums have not been paid.
Length of Coverage – The length of coverage is how long an insured individual has life insurance coverage. Permanent life insurance has a lifetime of coverage whereas term life insurance coverage only lasts a temporary period of time.
Level Premium – A level premium stays the same throughout the life of a policy.
Life Insurance – Life insurance is coverage placed on the life of an individual. Upon this person’s death, a benefit is paid to previously chosen beneficiaries.
Lifestyle Factors – Certain lifestyle factors can affect a proposed insured’s life insurance eligibility and cost of coverage. Lifestyle factors can include the insured’s job, hobbies, smoking status, drinking habits, and criminal record.
Material Misrepresentation – Material misrepresentation is a factually incorrect statement made on a life insurance application.
Medical Information Bureau (MIB) – MIB (Medical Information Bureau) is a secure computer database that stores coded medical and some non-medical information for fraud-detection purposes.
Mode – Mode is the frequency in which a policyowner pays the life insurance premiums. Mode options include monthly, quarterly, biannually, and annually. Also referred to as payment mode.
Moral Hazard – The moral fiber of a proposed insured is taken into consideration by a life insurance company during the underwriting process. Moral hazards can include gambling, drug use, and unethical business practices.
Mortality Risk – Mortality risk is a factor that affects chances of an individual dying. Rock climbing without equipment is an example of an activity that increases a person’s mortality risk.
Nearest Age – Nearest Age is one of two ways in which life insurance companies determine your age. Nearest age determines your age based on the birthday you’re closest to.
Occupational Hazard – A proposed insured’s job is taken into consideration by a life insurance company during the underwriting process because occupational hazards can increase mortality risk. Occupational hazards include jobs that have greater chances of on-the-job accidents and unhealthy working conditions.
Paramedical Exam – When applying for life insurance, proposed insureds often are required to take a physical exam. The paramedical exam is a short medical exam completed by a third-party representative of the insurance company. The paramedical exam usually includes height and weight, blood pressure, and heart rate measurements, taking blood and urine samples, and a medical history questionnaire.
Payment Mode – Payment mode is the frequency in which a policyowner pays the life insurance premiums. Payment mode options include monthly, quarterly, biannually, and annually. Also referred to as mode.
Payor – The payor is the person who pays the premiums of a life insurance policy to keep it inforce, or active. The payor is often the policyowner but not always.
Permanent Life Insurance – Permanent life insurance is a type of life insurance that provides coverage for the insured’s entire lifetime. Permanent life insurance policy features can include cash value accumulation, dividend payments, policy loan and surrender options.
Policy – The policy is the contract between a policyowner and life insurance company. The policyowner agrees to pay a premium keeping the policy inforce and the insurance company agrees to then pay proceeds upon the death of the person insured by the policy.
Policyowner – The policyowner is the person who has control over a life insurance policy. The policyowner can also be the same person as the payor, insured, or beneficiary.
Pre-Authorized Check (PAC) – A pre-authorized check is when policy premiums are withdrawn automatically from a bank account. Also referred to as electronic funds transfer (EFT).
Premium – The premium is the amount of money required by the insurance company to be paid by the policyowner to keep a policy inforce (active).
Primary Beneficiary – The primary beneficiary is the individual named in a life insurance policy to receive the death benefit when the insured dies. There can be more than one primary beneficiary. The primary beneficiary also not does have to be an individual but can be an entity such as a company or charity.
Proceeds – The insurance company pays proceeds of a predetermined amount to the policy’s beneficiary when/if the insured dies. Also referred to as death benefit, coverage amount, payout amount, and face amount.
Proposed Insured – The proposed insured is the individual named on the life insurance application whose life is to be covered.
Quote – A quote is an estimate of what it may cost to purchase a life insurance policy.
Quoting Tool – A quoting tool uses basic information regarding the proposed insured to calculate a preliminary estimate of the cost of life insurance coverage.
Rated Policy – A rated policy is issued to individuals whose risk factors mark them below standard risk accepted by insurance companies.
Reinstatement – A reinstatement clause allows a policyowner to reactivate their life insurance policy that has passed the grace period and lapsed. The policyowner will need to pay past due premiums and may have to provide evidence of insurability depending on how much time as past.
Replacement – Replacement is canceling a currently active life insurance policy in exchange for a new one.
Return of Premium Life Insurance – Return of premium life insurance products refund a portion or sometimes all of the premiums the policyowner has paid into the policy if the insured outlives the terms.
Rider – A rider is an optional add-on that you can include on your life insurance policy that provides extra benefits. Riders often cost extra but some are available at no cost.
Risk Classification – A risk classification is a category a life insurance company assigns an applicant to based on their health and lifestyle factors. These risk classes group people with similar risks together.
Risk Factor – Risk factors are unique to individuals. Risk factors help life insurance underwriters determine a proposed insured’s mortality risk. Risk factors are weighted differently and affect how much you pay for life insurance. Risk factors can be categorized as a health or lifestyle factor.
Rx Check – Life insurance companies will request medical prescription records of applicants during the underwriting process. This is referred to as an Rx check.
Saving Age – Saving Age is when your birthday passes during the life insurance buying process and the insurance company lets you lock in pricing based on the age you were when you applied. Also referred to as backdating.
Secondary Beneficiary – The secondary beneficiary is a backup person or entity you name to receive the policy’s death benefit if the primary beneficiary cannot. Also referred to as contingent beneficiary and other beneficiary.
Substandard Risk – 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.
Surrender – Surrendering is voluntarily terminating a life insurance policy.
Term Conversion – A term conversion is when all or some of your term insurance policy is converted into a permanent life insurance policy without evidence of insurability.
Third-Party Owner – A third-party owner is when the insured is not the same person as the policyowner.
Underwriter – The underwriter is a professional that evaluates the risks of insuring a proposed insured and uses that information to set premium pricing for the insurance policy.
Underwriting – Underwriting is the process of evaluating a proposed insured’s risk factors based on a set of guidelines to determine the cost of his or her life insurance policy.
Universal Life Insurance – A universal life insurance policy is a plan that offers the same death benefit as a whole life plan, but with a very flexible payment structure.
Waiver of Premium Rider – A waiver of premium rider ensures that you would not need to pay the premiums on your life insurance policy should you become totally disabled and can’t work. A waiver of premium rider is often available on life insurance policies for an additional cost.
Whole Life Insurance – Whole life insurance is a type of permanent life insurance product designed to last your entire life, often has fixed premiums, and accumulates a cash value over time.