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Glossary

Life insurance is inherently confusing, and some of the words may seem foreign. So we have a definition for each term or word you may hear or read.

By Aaron Polk, Founder & CEO
Published September 18, 2026
5 minute read

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How Does Life Insurance Work?

You pay a premium to an insurance company. In return, the company agrees to pay a sum of money, called the death benefit, to the people you name if you die while the policy is in force. Those people are your beneficiaries.

Beneficiaries can generally use the money however they need to, whether that is funeral costs, a mortgage, debts, or replacing a paycheck. The details depend on the type of policy, the carrier, your state, and the policy's own terms. The words below are the ones you are most likely to hear along the way.

Life Insurance Glossary: Terms and Definitions

305 terms, written in plain language. These definitions are general education. Your own policy's wording controls what is covered and paid.

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1035 Exchange: A swap of one life insurance policy or annuity for another that, when done correctly under Section 1035 of the tax code, generally does not trigger income tax. A life policy can move to a life policy or an annuity, but an annuity cannot move to a life policy.
7-Pay Test: An IRS test that compares the premiums paid in the first seven years to a set limit. If a policy is funded faster than the limit allows, it becomes a modified endowment contract.

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Absolute Assignment: A permanent transfer of all ownership rights in a policy to another person or entity. The new owner controls the policy from that point forward.
Accelerated Death Benefit: A feature that may let the insured receive part of the death benefit while still living after a qualifying diagnosis, such as a terminal illness. Any amount paid early reduces what beneficiaries receive later.
Accelerated Underwriting: A faster review process some carriers use that relies on records and data checks in place of a medical exam. Not every applicant qualifies, and the carrier can still ask for an exam.
Accident Insurance: Supplemental coverage that pays a set cash benefit for covered injuries, such as fractures or emergency room visits. It pays in addition to any health insurance.
Accidental Death and Dismemberment (AD&D): Coverage that pays if death or a listed serious injury, such as loss of a limb or eyesight, results from a covered accident. It does not pay for death from illness.
Accidental Death Benefit Rider: An add-on that pays an extra amount, often equal to the face amount, if the insured dies from a covered accident. It usually costs extra.
Accumulation Phase: The period when money inside a deferred annuity grows before income payments begin.
Actuary: A professional who uses math and statistics to measure risk. Actuaries help insurers set premiums and reserves.
Adhesion, Contract of: A contract written by one side and accepted as is by the other. Because the insurer writes the policy, courts generally read unclear wording in favor of the policyowner.
Adverse Selection: The tendency of people who expect a claim to buy more insurance than people who do not. Underwriting exists in part to manage this.
Age Band: A range of ages that share one premium rate, used in place of pricing each age separately. Group and some simplified products are priced this way.
Age Nearest vs. Age Last Birthday: Two ways carriers set your age for pricing. One uses your last birthday. The other rounds to the nearest birthday, which can make you a year older six months early.
Agency: A business licensed to sell insurance on behalf of one or more insurance carriers.
Agent: A person licensed by a state to sell insurance. Producer is another name for agent.
Aleatory Contract: A contract where the amounts exchanged are unequal and depend on an uncertain event. A small premium can result in a large benefit, or in no claim at all.
AM Best: A credit rating agency that focuses on the insurance industry. Its letter grades reflect its opinion of an insurer's financial strength and ability to pay claims.
Annual Premium: The total cost of a policy for one year when paid once a year.
Annual Renewable Term: Another name for Yearly Renewable Term.
Annuitant: The person whose life is used to measure annuity payments. The annuitant is often, but not always, the owner.
Annuitization: Turning an annuity's value into a stream of income payments. Once started, this choice generally cannot be undone.
Annuity: A contract with an insurance company designed to grow money, provide income, or both. You pay a premium, and the insurer makes payments now or in the future under the contract terms.
Any-Occupation Disability: A definition of disability that pays only if you cannot work in any job you are reasonably suited for by education, training, or experience. It is harder to meet than an own-occupation definition.
Application: The form that gives the insurer the personal, health, and financial information it needs to decide on coverage. It becomes part of the policy, so answers must be complete and truthful.
Assignment: A transfer of some or all policy rights to another party. See Absolute Assignment and Collateral Assignment.
Attained Age: Your current age at a given point in the policy, as opposed to your age when it was issued.
Attending Physician Statement (APS): Medical records or a report an insurer requests from a doctor or facility that has treated the applicant. It is used to confirm health history during underwriting.
Automatic Premium Loan: A provision on some cash value policies that borrows from the cash value to pay a missed premium so the policy does not lapse. The loan accrues interest and reduces the death benefit if unpaid.

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Backdating: Setting a policy's effective date earlier than the application date to lock in pricing at a younger age. The owner pays premiums back to that date. Also called saving age.
Basic Life Insurance: Group life coverage an employer provides, often at no cost to the employee, usually for a flat amount or a multiple of salary.
Beneficiary: The person, trust, charity, business, or estate named to receive the death benefit.
Benefit Period: In disability or similar coverage, the longest length of time benefits will be paid for a covered claim.
Best Interest Standard: A rule in many states requiring that an annuity recommendation serve the consumer's interest ahead of the agent's financial interest.
Binding Receipt: A receipt given with the first premium that provides temporary coverage right away, up to stated limits, while the application is reviewed. It is less common than a conditional receipt.
Broker: A licensed insurance professional who can place coverage with multiple insurance companies and is not tied to one.
Build Chart: An underwriting table that sets height and weight ranges for each rate class.
Burial Insurance: A common name for a small whole life policy bought mainly to cover funeral and other final costs. Also called final expense insurance. Beneficiaries can generally use the money for any purpose.
Buy-Sell Agreement: A contract among business owners that sets what happens to an owner's share at death, disability, or departure. Life insurance is often used to fund the purchase.

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Cancer Insurance: Supplemental coverage that pays cash benefits after a covered cancer diagnosis or for covered cancer treatment. Benefits, waiting periods, and exclusions vary by policy.
Cap Rate: The highest interest rate an indexed product will credit for a period, no matter how much the index rises.
Captive Agent: An agent who represents one insurance company and mainly offers that company's products.
Carrier: Another name for an insurance company, the business that issues the policy and pays covered claims.
Cash Surrender Value: The amount the owner receives if a cash value policy is canceled. It equals the cash value minus any surrender charges and unpaid loans.
Cash Value: The savings-like value that builds inside permanent life insurance. The owner may be able to borrow against it, withdraw from it, or receive it if the policy is surrendered.
Cash Value Accumulation Test: One of two tests in the tax code used to decide whether a contract qualifies as life insurance. It limits cash value relative to the death benefit.
Ceding Company: An insurer that passes part of its risk to a reinsurer.
Certificate of Insurance: The document that shows coverage under a group policy or a policy from a fraternal benefit society.
Child Rider: An add-on to an adult's policy that provides a small amount of life insurance on eligible children. It usually costs extra and can often be converted later.
Chronic Illness Rider: A rider that may let the insured access part of the death benefit if they cannot perform a set number of daily living activities or have severe cognitive impairment. Payments reduce the death benefit.
Churning: Replacing a policy with another from the same company mainly to generate a new commission and without a real benefit to the client. It is a prohibited practice.
Claim: A formal request to an insurer for payment of a policy benefit.
Collateral Assignment: A temporary transfer of part of a policy's benefit to a lender as security for a loan. If the insured dies, the lender is paid what is owed and the rest goes to the beneficiaries.
Commission: The compensation an insurance company pays an agent or agency when a policy is sold. It is usually a percentage of the premium.
Common Disaster Clause: A provision that says what happens if the insured and the primary beneficiary die in the same event or within a short time of each other. It typically directs the benefit to the contingent beneficiary.
Concealment: Failing to disclose a fact the insurer needs to evaluate an application. Concealing a material fact can lead to a denied claim or a rescinded policy.
Conditional Receipt: A receipt given with the first premium that can start coverage before the policy is issued, but only if the applicant is later found insurable as applied for.
Consideration: What each side gives to form a contract. The applicant gives the premium and truthful statements, and the insurer gives its promise to pay.
Contestability Period: A period, generally the first two years, when the insurer may review the application after a death and can deny a claim or rescind the policy for a material misstatement. It is not the same as a waiting period.
Contingent Beneficiary: The backup beneficiary who receives the death benefit if no primary beneficiary is living when the insured dies.
Conversion Privilege: The right to change a term policy, or group coverage, into permanent insurance without new proof of good health. The window to convert is limited and varies by carrier.
Convertible Term: A term life policy that includes a conversion privilege.
Corridor: The required gap between a policy's cash value and its death benefit that keeps the contract qualified as life insurance under the tax code.
Cost Basis: Generally the total premiums paid into a policy or annuity, less any amounts already received tax free. It is used to figure how much of a withdrawal or surrender is taxable.
Cost of Insurance: The monthly charge inside a universal life policy that pays for the death benefit. It generally rises as the insured gets older.
Cost of Living Rider: A rider that increases coverage or benefits over time to help keep up with inflation.
Credit Life Insurance: Coverage sold with a loan that pays off the remaining loan balance if the borrower dies. The lender is the beneficiary.
Cremation Insurance: A common name for a small whole life policy bought to cover cremation and related costs. It works the same way as burial or final expense insurance.
Critical Illness Insurance: Coverage that pays a lump sum after a covered diagnosis, such as heart attack, stroke, or cancer. The list of covered conditions and definitions varies by policy.
Cross-Purchase Agreement: A buy-sell arrangement in which each business owner owns a life policy on the other owners and uses the proceeds to buy a deceased owner's share.

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Death Benefit: The amount the insurer pays to the beneficiary when the insured dies, subject to the policy terms. Also called the face amount. It is generally received free of federal income tax.
Death Certificate: The official record of a death. Insurers require a certified copy before paying a claim.
Death Claim: The request a beneficiary files with the insurer to receive the death benefit.
Decreasing Term: Term life insurance with a death benefit that goes down over time while the premium usually stays level. It was commonly used to match a shrinking mortgage balance.
Deferred Annuity: An annuity that grows for a period of time before income payments begin.
Department of Insurance: The state agency that licenses agents and insurers, reviews policy forms, and handles consumer complaints. Insurance is regulated mainly at the state level.
Disability Income Insurance: Coverage that replaces part of your income if an illness or injury keeps you from working, after an elimination period.
Dividend: A payment a participating policy may receive when the insurer's results are better than expected. Dividends are not guaranteed and are generally treated as a return of premium for tax purposes.
Dividend Options: The ways a policyowner can use dividends, such as taking cash, reducing premiums, leaving them to earn interest, or buying paid-up additions.

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Effective Date: The date coverage begins under the policy.
Elimination Period: The waiting time between the start of a disability or covered event and the date benefits begin. It works like a deductible measured in days.
Endowment: A policy that pays the face amount if the insured dies during the term or is still living at the end of it. Also, the point at which a whole life policy's cash value equals its face amount.
Entity Purchase Agreement: A buy-sell arrangement in which the business itself owns the policies and buys a deceased owner's share. Also called a stock redemption plan.
Errors and Omissions Insurance: Professional liability coverage that protects agents and agencies if a client claims a mistake or oversight caused a loss.
Estate: Everything a person owns at death. If no beneficiary is living or named, a death benefit may be paid to the estate and pass through probate.
Evidence of Insurability: Proof of good health, such as health questions, records, or an exam, that an insurer may require before issuing or increasing coverage.
Exclusion: A cause of death or situation the policy does not cover. Exclusions are listed in the policy.
Executive Bonus Plan: An arrangement in which an employer pays the premium on a policy the employee owns and treats the payment as a taxable bonus. Sometimes called a Section 162 plan.
Extended Term Insurance: A nonforfeiture option that uses a lapsing policy's cash value to buy term coverage for the same face amount for as long as the cash value will pay for it.

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Face Amount: The amount of coverage stated on the policy. Also called face value or death benefit.
Face Value: Another name for the face amount or death benefit.
Facultative Reinsurance: Reinsurance arranged one policy at a time, where the reinsurer can accept or decline each risk.
Fair Credit Reporting Act: The federal law that gives consumers the right to know when a consumer report is used in an insurance decision and to dispute inaccurate information.
Fiduciary: A person who is legally required to act in another person's interest and to handle money or information with care.
Final Expense Insurance: A small whole life policy, often with simplified underwriting, bought to help pay funeral costs, medical bills, and other debts left at death. Coverage amounts are commonly between $5,000 and $50,000.
First-to-Die Policy: A joint policy covering two people that pays when the first one dies. Coverage then ends for the survivor unless the policy says otherwise.
Fixed Amount Option: A settlement option that pays the death benefit in installments of a chosen dollar amount until the money and interest run out.
Fixed Annuity: An annuity that credits a declared interest rate and protects principal from market loss, subject to the insurer's ability to pay. Learn more in our fixed annuity guide.
Fixed Indexed Annuity: An annuity whose interest is tied to the performance of a market index, within limits such as caps or participation rates. Principal is not directly invested in the market.
Fixed Period Option: A settlement option that pays the death benefit and interest in equal installments over a chosen number of years.
Flat Extra: An added charge per $1,000 of coverage for a specific risk, such as a hazardous job, hobby, or recent health event. It may be temporary or permanent.
Flexible Premium: A premium the owner can raise, lower, or skip within limits, as found in universal life. Paying too little can cause the policy to lapse.
Fraternal Benefit Society: A nonprofit membership organization that can provide life insurance and other benefits to its members.
Fraud: Knowingly providing false information to gain a benefit. Insurance fraud can void coverage and is a crime.
Free Look Period: A window after delivery, commonly 10 to 30 days depending on the state, when the owner can return a new policy for a refund of premiums paid.
Free Withdrawal: The amount, often up to 10 percent of the value each year, that many annuities let the owner take out without a surrender charge.
Fully Underwritten: Coverage that requires a complete review of health, often including an exam, lab work, and medical records. It usually offers the lowest pricing for healthy applicants.
Funeral Insurance: Another common name for burial or final expense insurance. It is a type of life insurance, and the benefit is paid to the beneficiary you name.

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Grace Period: The time after a missed premium due date, often about 30 days, when the policy stays in force and can be paid without penalty. If the insured dies during this time, the unpaid premium is deducted from the benefit.
Graded Benefit: A policy that pays a limited amount if death from natural causes occurs in the first years, typically two. The full benefit is paid after that period, and accidental death is usually covered in full from the start.
Grandchild Rider: An add-on to a grandparent's policy that provides a small amount of life insurance on eligible grandchildren. It usually costs extra.
Group Life Insurance: One policy covering many people, usually through an employer or association. Members receive a certificate, and coverage often ends or changes when employment ends.
Guaranteed Acceptance: Another name for Guaranteed Issue.
Guaranteed Insurability Rider: A rider that lets the owner buy more coverage at set dates or life events without new proof of good health.
Guaranteed Issue: Coverage with no health questions and no exam. Approval is not based on health, but premiums are higher and the policy usually has a graded benefit in the first two years.
Guaranty Association: A state organization that protects policyowners, up to limits set by state law, if an insurance company becomes insolvent.
Guideline Premium Test: One of two tests in the tax code used to decide whether a contract qualifies as life insurance. It limits how much premium can be paid for a given death benefit.

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Hazard: A condition that raises the chance of a loss. See Moral Hazard and Morale Hazard.
HIPAA Authorization: The signed permission that allows an insurer to obtain an applicant's protected health information for underwriting.
Hospital Indemnity Insurance: Supplemental coverage that pays a fixed cash amount for a covered hospital stay or related service, regardless of what health insurance pays.
Human Life Value: A way to estimate how much life insurance a person needs based on the income they would have earned for their family over their working years.

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Illustration: A carrier document that projects how a policy's premiums, cash value, and death benefit could perform over time. It shows guaranteed and non-guaranteed values and is not a promise.
Immediate Annuity: An annuity bought with a single payment that begins income payments within about a year. Often called a SPIA.
Immediate Coverage: A policy with no waiting period, so the full death benefit applies from the first day for covered causes of death.
Incidents of Ownership: Rights over a policy, such as changing the beneficiary, borrowing, or surrendering it. Holding any of these rights can cause the death benefit to be counted in a person's taxable estate.
Income Replacement: Using life or disability insurance to cover the paycheck a family would lose if the earner died or could not work.
Incontestability Clause: The provision that, after the contestability period ends, generally prevents the insurer from voiding the policy over statements in the application.
Increasing Term: Term life insurance with a death benefit that rises over time on a set schedule.
Independent Agent: An agent who represents several insurance companies and can compare their products for a client.
Indexed Universal Life (IUL): Universal life insurance whose cash value interest is linked to a market index, subject to caps, floors, and participation rates. Charges and credited interest can change.
Inspection Report: A background report an insurer may order on an applicant covering lifestyle, finances, and habits. It is a consumer report under federal law.
Insurability: Whether an applicant meets a carrier's standards for coverage based on health, age, occupation, and other factors.
Insurable Interest: A real financial or emotional stake in the insured person's continued life. It must exist when the policy is issued.
Insurance: A contract in which an insurer agrees to pay for covered losses in exchange for a premium.
Insurance Company: A business legally authorized to issue insurance contracts. Also called an insurer or carrier.
Insured: The person whose life the policy covers.
Interest Only Option: A settlement option in which the insurer holds the death benefit and pays the interest to the beneficiary, who can often withdraw the principal later.
Irrevocable Beneficiary: A beneficiary who cannot be removed or changed without that person's written consent.
Irrevocable Life Insurance Trust (ILIT): A trust that owns a life insurance policy so the death benefit is generally kept out of the insured's taxable estate. It cannot be changed easily once created.
Issue Age: The insured's age when the policy begins. Carriers set minimum and maximum issue ages for each product.

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Joint and Survivor Option: A payout choice that continues income for as long as either of two people is living.
Joint Life Insurance: One policy that covers two people. See First-to-Die Policy and Survivorship Life Insurance.
Juvenile Life Insurance: A permanent policy that insures a child, usually owned by a parent or grandparent.

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Key Person Insurance: Life insurance a business owns on an owner or employee whose death would hurt the company financially. The business is the beneficiary.
Knockout Questions: Health questions on a simplified application that lead to a decline for that product if answered yes.

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Lapse: When a policy ends because premiums were not paid by the end of the grace period.
Law of Large Numbers: The principle that the more similar risks an insurer covers, the more accurately it can predict total claims.
Level Benefit: A policy that pays the full death benefit from the first day with no waiting period. In final expense coverage, it is usually the lowest-priced health class.
Level Premium: A premium that is designed to stay the same for the life of the policy or for the full term.
Level Term: Term life insurance with a death benefit and premium that stay the same for the chosen term, such as 10, 20, or 30 years.
License: State permission to sell insurance. Agents must be licensed in each state where they do business, and you can verify a license with the state department of insurance.
Life Expectancy: The average number of years a person of a given age and health is expected to live, based on mortality data.
Life Income Option: A settlement option that pays the beneficiary an income for life. Adding a period certain continues payments for a minimum number of years.
Life Insurance: A contract that pays a death benefit to named beneficiaries when the insured dies, in exchange for premiums, subject to the policy terms.
Life Settlement: The sale of an existing life insurance policy to a third party for more than its cash surrender value and less than its death benefit. The buyer takes over the premiums and receives the death benefit.
Limited Pay Whole Life: Whole life insurance with premiums that end after a set number of years or at a set age, while coverage continues for life.
Line of Authority: The type of insurance a license allows an agent to sell, such as life or accident and sickness.
Living Benefits: A general term for features that may let the insured use part of the death benefit while living after a qualifying terminal, chronic, or critical illness.
Long-Term Care Rider: A rider that may pay for qualifying long-term care costs by drawing from the death benefit.
Lump Sum: Payment of the full death benefit at one time. It is the most common way beneficiaries are paid.

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Managing General Agent (MGA): An agency with authority from a carrier to recruit, support, and oversee other agents.
Market Value Adjustment: A feature on some annuities that raises or lowers the amount paid on an early withdrawal based on how interest rates have changed since purchase.
Material Misrepresentation: A false statement on an application that would have changed the insurer's decision had it known the truth.
Maturity Date: The date a permanent policy's cash value is scheduled to equal its face amount, often age 100 or 121. The policy may pay out at that point.
Medical Exam: A short health check for underwriting, usually done at home or work. It typically includes height, weight, blood pressure, and blood and urine samples. Also called a paramedical exam.
MIB: MIB Group is a member organization that lets life and health insurers share coded information from past applications to help catch errors and fraud. You can request a copy of your own file.
Minor Beneficiary: A beneficiary under the age of majority. Insurers generally will not pay a minor directly, so a trust or custodian is often needed.
Misstatement of Age: A provision that adjusts the benefit to what the premium would have bought at the correct age or sex if either was stated incorrectly.
Modal Premium: The premium for the payment schedule you choose, such as monthly, quarterly, semiannual, or annual. Paying more often usually costs slightly more over a year.
Modified Benefit: A policy class that returns premiums plus interest, and not the full death benefit, if death from natural causes occurs during the waiting period, usually two years.
Modified Endowment Contract (MEC): A life insurance policy funded faster than the tax code allows under the 7-pay test. Loans and withdrawals are taxed less favorably, but the death benefit is generally still income tax free.
Modified Whole Life: Whole life insurance with lower premiums in the early years that step up later.
Moral Hazard: A raised risk of loss that comes from dishonesty, such as lying on an application or filing a false claim.
Morale Hazard: A raised risk of loss that comes from carelessness because a person knows they are insured.
Mortality and Expense Charge: A fee inside variable products that compensates the insurer for the insurance guarantees and administrative costs.
Mortality Table: A chart showing the expected rate of death at each age. Insurers use it to price coverage.
Mortgage Protection Insurance: Life insurance, usually term, bought so a family could pay off or keep paying the mortgage if an owner dies. It is different from private mortgage insurance, which protects the lender.
Motor Vehicle Report: A driving record an insurer may review during underwriting.
Multi-Year Guaranteed Annuity (MYGA): A fixed annuity that guarantees a set interest rate for a chosen number of years, subject to the insurer's ability to pay.
Mutual Insurer: An insurance company owned by its policyowners, who may receive dividends.

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NAIC: The National Association of Insurance Commissioners, the organization of state insurance regulators that writes model laws and consumer guidance.
National Producer Number (NPN): A unique ID assigned to each licensed insurance professional and agency. You can use it to look up a license.
Needs Analysis: A review of debts, income, final costs, and goals used to estimate how much coverage a person should consider.
No Waiting Period: A policy that pays the full death benefit for covered natural or accidental death from the first day. See Immediate Coverage.
No-Exam Life Insurance: Coverage that does not require a medical exam. The insurer still reviews health answers and may check prescription, medical, and driving records.
No-Lapse Guarantee: A universal life feature that keeps coverage in force even if the cash value drops to zero, as long as the required premiums are paid on time.
Nonforfeiture Options: The choices a cash value policyowner has if premiums stop: take the cash surrender value, reduced paid-up insurance, or extended term insurance.
Non-Med: Short for non-medical. Another name for No-Exam Life Insurance.
Non-Participating Policy: A policy that does not pay dividends.
Non-Qualified Annuity: An annuity bought with money that has already been taxed. Only the earnings are taxed when withdrawn.

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Ordinary Life: Another name for traditional whole life insurance with premiums payable for life.
Owner: The person or entity that controls the policy. The owner names the beneficiary, pays or arranges the premium, and can borrow from or surrender the policy. Also called the policyowner.
Own-Occupation Disability: A definition of disability that pays if you cannot perform the main duties of your own job, even if you could work in another field.

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Paid-Up Additions: Small amounts of fully paid permanent coverage bought with dividends. They add to both the death benefit and the cash value.
Paid-Up Policy: A policy that stays in force with no more premiums due.
Paramedical Exam: Another name for the underwriting Medical Exam, performed by a trained examiner and not by your own doctor.
Partial Surrender: A withdrawal from a policy's cash value. It reduces the cash value and the death benefit and may be taxable.
Partial Waiting Period: A design that pays a percentage of the death benefit, often 30 to 40 percent in year one and 70 to 80 percent in year two, for death from natural causes before the full benefit applies. Percentages vary by carrier.
Participating Policy: A policy that may receive dividends from the insurer. Dividends are not guaranteed.
Participation Rate: The share of an index's gain that an indexed product credits as interest. With an 80 percent rate, a 10 percent index gain credits 8 percent before any cap.
Payor: The person or entity that pays the premiums. The payor can be different from the owner and the insured.
Payor Benefit Rider: A rider on a child's policy that waives premiums if the adult paying them dies or becomes disabled.
Per Capita: A beneficiary designation that splits the benefit equally among the named beneficiaries who are still living.
Per Stirpes: A beneficiary designation that passes a deceased beneficiary's share down to that person's children.
Peril: The cause of a loss, such as an accident or illness.
Period Certain: A guarantee that income payments will continue for at least a set number of years, even if the person receiving them dies sooner.
Permanent Life Insurance: Coverage designed to last for life and build cash value, as long as required premiums are paid. Whole life and universal life are the main types.
Personal History Interview: A recorded phone or online interview in which the insurer asks the applicant to confirm or clarify health and lifestyle answers.
Policy: The written contract between the owner and the insurance company. Its terms, not marketing material, control what is paid.
Policy Fee: A flat administrative charge built into the premium. It is part of the price quoted, not an added cost.
Policy Loan: Money borrowed from the insurer using the policy's cash value as collateral. Interest is charged, and any unpaid balance is subtracted from the death benefit.
Policyholder: Another name for the policy owner.
Pre-Existing Condition: A health condition that existed before the policy was issued. Many conditions are still insurable, though they can affect price, product, or waiting periods.
Preferred: A rate class for applicants in better than average health. Many carriers also offer a higher tier, often called preferred plus.
Premium: The payment that keeps an insurance policy in force.
Pre-Need Plan: An arrangement made with a funeral home to choose and pay for services in advance, sometimes funded by an insurance policy that pays the funeral home.
Pre-Paid Funeral Plan: A plan set up directly with a funeral home in which you choose services and pay in full or in installments. Ask what happens if the funeral home closes or you move.
Prescription History Report: A database check of an applicant's prescription records, used with the applicant's permission during underwriting.
Primary Beneficiary: The first person or entity in line to receive the death benefit.
Probate: The court process that settles a person's estate. A death benefit paid to a named, living beneficiary generally does not go through probate.
Producer: The term regulators use for a licensed insurance agent or broker.
Proof of Death: The documents an insurer requires to pay a claim, usually a claim form and a certified death certificate.
Prospectus: The disclosure document required for variable life insurance and variable annuities. It explains investment options, charges, and risks.
Pure Risk: A risk with only two outcomes, loss or no loss. Pure risks are the kind insurance is designed to cover.

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Qualified Annuity: An annuity held inside a retirement plan, such as an IRA, and funded with pre-tax money. Withdrawals are generally fully taxable.
Quote: An estimate of premium based on the information provided. It is not an offer of coverage, and the final price depends on underwriting.

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Rate Class: The health and risk category an insurer assigns after underwriting, such as preferred, standard, or substandard. It determines the premium.
Rated Policy: A policy issued at a higher than standard price because of health or other risk factors. Also called a table rating or substandard rating.
Rebating: Giving a client part of the commission or something else of value, not stated in the policy, as an incentive to buy. It is prohibited or limited in most states.
Reduced Paid-Up Insurance: A nonforfeiture option that uses a policy's cash value to buy a smaller amount of coverage that needs no further premiums.
Reinstatement: Putting a lapsed policy back in force. It usually requires an application, proof of good health, and payment of missed premiums with interest within a set time limit.
Reinsurance: Insurance bought by insurance companies to share part of the risk they have taken on.
Renewable Term: Term life insurance that can be continued at the end of the term without new proof of good health, at a higher premium based on attained age.
Renewal Commission: Compensation an insurer may pay an agent in years after the first, while the policy stays in force.
Replacement: Buying a new policy and ending, reducing, or borrowing from an existing one to do it. States require extra disclosures because replacement can cost the owner benefits.
Representation: A statement on an application that the applicant believes is true to the best of their knowledge.
Required Minimum Distribution: The amount the IRS generally requires owners of most retirement accounts, including qualified annuities, to withdraw each year after reaching a set age.
Rescission: An insurer canceling a policy back to its start date and refunding premiums, usually because of a material misrepresentation found during the contestability period.
Retention Limit: The most risk an insurer will keep on one life before passing the rest to a reinsurer.
Return of Premium Term: Term life insurance that refunds the premiums paid if the insured outlives the term. It costs more than standard term.
Revocable Beneficiary: A beneficiary the owner can change at any time without the beneficiary's consent. Most designations are revocable.
Rider: An optional add-on that changes or expands a policy's benefits. Some riders are included, and others cost extra.
Risk: Uncertainty about whether a loss will happen.
Risk Pooling: Spreading the cost of the losses of a few across the premiums of many.

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Save Age: Another name for Backdating.
Second-to-Die: Another name for Survivorship Life Insurance.
Senior Life Insurance: A marketing phrase, not a product type. It can describe term, whole, or universal life offered to older applicants, so ask which one is being quoted.
Separate Account: The investment account that holds the funds behind variable life and variable annuity contracts. It is kept apart from the insurer's general assets.
Settlement Options: The ways a death benefit can be paid, including lump sum, interest only, fixed period, fixed amount, and life income.
Simplified Issue: Coverage approved using health questions and database checks, with no medical exam. It is faster than full underwriting and usually costs more.
Single Premium Immediate Annuity (SPIA): An Immediate Annuity bought with one payment.
Single Premium Life: A permanent policy paid for with one large premium. It is usually classified as a modified endowment contract.
Speculative Risk: A risk that could end in a loss, no change, or a gain, such as gambling or investing. It is generally not insurable.
Spendthrift Clause: A provision that protects death benefit payments held by the insurer from the claims of the beneficiary's creditors, to the extent state law allows.
Split-Dollar Plan: An arrangement in which two parties, often an employer and an employee, share the premiums, cash value, and death benefit of a policy under a written agreement.
Spouse Rider: An add-on that provides term coverage on the insured's spouse.
Standard: The rate class for applicants in average health with a normal life expectancy.
State Availability: The states where a product is approved for sale. Products and riders can differ from state to state.
Stock Insurer: An insurance company owned by shareholders.
Stranger-Originated Life Insurance (STOLI): A policy started for the benefit of investors who have no insurable interest in the insured. These arrangements are prohibited in most states.
Substandard: A rate class for applicants with higher than average risk. Coverage costs more and is often priced using table ratings.
Suicide Clause: A provision that limits the payout to a refund of premiums if the insured dies by suicide within a set period, typically two years from issue.
Suitability: The requirement that a recommendation fit the client's needs, finances, and goals based on information the client provides.
Supplemental Life Insurance: Extra group coverage an employee can buy on top of employer-paid basic life. Larger amounts may require evidence of insurability.
Surrender: Canceling a cash value policy or annuity in exchange for its surrender value.
Surrender Charge: A fee deducted if a policy or annuity is canceled, or more than the free amount is withdrawn, during the early years. The charge usually declines each year until it reaches zero.
Surrender Period: The number of years during which surrender charges apply.
Surrender Value: Another name for Cash Surrender Value.
Survivorship Life Insurance: One policy covering two people that pays after the second person dies. It is often used in estate planning. Also called second-to-die.

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Table Rating: An extra charge, usually shown as a letter or number, added to the standard price for higher-risk applicants. Each table typically adds about 25 percent.
Tax-Deferred: Growth that is not taxed until money is withdrawn. Cash value and annuity earnings generally grow this way.
Temporary Insurance Agreement: Short-term coverage some carriers provide while an application is in underwriting, when the first premium is paid and conditions are met.
Temporary Life Insurance: Another name for Term Life Insurance.
Term Life Insurance: Coverage that lasts for a set number of years and pays only if the insured dies during that time. It generally does not build cash value and costs less than permanent coverage at the start.
Term Rider: An add-on that places an amount of term coverage on top of a permanent policy.
Terminal Illness Rider: A rider that may advance part of the death benefit if a doctor certifies a limited life expectancy, commonly 12 or 24 months.
Third-Party Ownership: A policy owned by someone other than the insured, such as a spouse, business, or trust.
Three-Year Rule: The estate tax rule that can pull a death benefit back into the insured's taxable estate if the insured gave away the policy within three years of death.
Tobacco Rate: The higher price class for people who have used tobacco or nicotine within a carrier's lookback period.
Transfer for Value: Selling or trading a policy for something of value. It can make part of the death benefit taxable unless an exception applies.
Treaty Reinsurance: A standing agreement in which a reinsurer automatically accepts a defined share of an insurer's policies.
Twisting: Using misleading statements to persuade someone to drop a policy and buy another, usually from a different company. It is a prohibited practice.

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Underwriter: The person at an insurance company who reviews applications and decides whether to offer coverage and at what price.
Underwriting: The process an insurer uses to evaluate an applicant's risk and decide on approval and rate class.
Unfair Trade Practices: Conduct that state law prohibits, such as misrepresentation, false advertising, rebating, twisting, and unfair discrimination.
Uniform Simultaneous Death Act: A law adopted in most states that, when the insured and beneficiary die together and the order cannot be determined, treats the insured as having outlived the beneficiary.
Unilateral Contract: A contract in which only one side makes an enforceable promise. The insurer must pay covered claims, but the owner is not required to keep paying premiums.
Uninsurable: Unable to qualify for coverage under a carrier's standard underwriting. Guaranteed issue products may still be an option.
Unit of Insurance: A pricing method in which the premium per unit is fixed and the amount of coverage each unit buys depends on age and sex.
Universal Life Insurance: Permanent coverage with flexible premiums and an adjustable death benefit. Cash value earns interest, and monthly charges are deducted, so underfunding can cause the policy to lapse.
Utmost Good Faith: The principle that both the applicant and the insurer must deal honestly and disclose what matters to the contract.

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Variable Life Insurance: Permanent coverage whose cash value is invested in market-based subaccounts chosen by the owner. Values can go down, and it can be sold only by someone with a securities license.
Variable Universal Life (VUL): A policy that combines the flexible premiums of universal life with the investment subaccounts of variable life.
Viatical Settlement: The sale of a life insurance policy by a person who is terminally or chronically ill, in exchange for a cash payment that is less than the death benefit.
Viator: The policyowner who sells a policy in a viatical settlement.
Voluntary Life Insurance: Optional group life coverage offered at work and paid for by the employee, usually through payroll deduction.

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Waiting Period: A period at the start of some policies, usually two years, when death from natural causes pays a refund of premiums plus interest or a partial benefit, and not the full face amount.
Waiver of Premium Rider: A rider that keeps the policy in force without premium payments if the insured becomes totally disabled, after a waiting period.
War Exclusion: A provision some policies include that limits payment for deaths caused by war or military action.
Warranty: A statement guaranteed to be true. Statements on life insurance applications are generally treated as representations, not warranties.
Wash Loan: A policy loan on which the interest charged is offset by the interest credited to the borrowed cash value, so the net cost is at or near zero. Availability and terms vary by policy.
Whole Life Insurance: Permanent coverage with a level premium, a death benefit designed to last for life, and cash value that grows on a schedule set in the policy.
Withdrawal: Taking money out of a policy's cash value or an annuity. Withdrawals reduce values and may be taxable or subject to charges.

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Yearly Renewable Term: Term life insurance that renews each year at a premium that rises with age. Also called annual renewable term.

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Zero-Cost Loan: Another name for a Wash Loan.

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This glossary is for general education and is not legal, tax, or investment advice. Products, features, and rules vary by carrier and state. See how we research and review our content in our Editorial Standards.