Life Insurance Term Dictionary

Last updated: March 30, 2016

Definitions of Technical Terms

Beneficiary

The designated individual(s) assigned to receive the benefits from a life insurance policy after the owner of the policy dies.

Cash Surrender Value

The amount available when a whole life, universal, or variable life insurance policy is canceled or "surrendered."

Contingent Beneficiary

The designated individual assigned to receive the benefits from a life insurance policy if the primary beneficiary is no longer alive.

Death Benefit

The money received when the owner of a life insurance policy dies. (This amount is referred to as the "face value.")

Dividend

Money paid annually to a policy owner that represents a return of premium that is based on a company's claims, investment, and administrative experience.

Free Look Provision

The 10-day period following receipt of a policy in which the insured has the right to return the policy for a full refund for any reason (unless you have purchased a variable policy, in which case the refund is based on the performance of the investments you have chosen).

Incontestability Provision

A provision that allows the insurance company a set time limit of two years during which the company has the right to void the life insurance contract for material misstatements made in the application.

Indexed Universal Life Insurance

A type of universal life insurance which earns interest based on changes in an external market index.

Insurability

Evidence that an individual who is issued a life insurance policy meets certain criteria set by each insurance company, including proof of good health.

Irrevocable Beneficiary

A named beneficiary that cannot be changed without the consent of that beneficiary.

Life Insurance Illustration

A personalized life insurance illustration is a text-and-graphics presentation or depiction of how a life insurance policy may perform over time based on both guaranteed and non-guaranteed policy elements, such as cost of insurance, premium payments, and interest earned.

Life Insurance Replacement

Any transaction in which you purchase a new life insurance policy which results in a substantial reduction in benefits available under an existing policy including: termination of an existing policy, exercising non-forfeiture options, borrowing existing policy's cash value, or reissuing an existing policy with reduced cash values.

Life Settlement

The sale of an existing life insurance policy to a third party

Mortality Class

A rating given to each life insurance policy applicant to determine his or her risk of death based on factors such as age, sex, occupation, medical history, habits, and residence.

Nonforfeiture Value

The value of a life insurance policy that entitles the policy owner to one of the following: (1) Relinquish the policy for its cash surrender value; (2) Take a reduced paid-up insurance; (3) Purchase of extended term insurance.

Permanent Life Insurance

See "Whole Life Insurance".

Premium:

The rate that a policy owner is charged to purchase life insurance.

Prospectus

A legal document issued by the life insurance company that outlines the details of a variable life insurance policy.

Rating

The idea that says if an underwriter determines your risk of death is greater than normal, your policy will be "rated", and the premium will cost more than standard premiums. This rating can be given due to any number of reasons, including health or occupation. If that reason for rating changes at a later date, the rating may be reduced or eliminated entirely.

Rider

Additional coverage added to life insurance that was not included in the original policy. Examples of life insurance riders include accidental death benefits, long-term care riders, and guaranteed insurability riders.

Surrender Charges

Fees that must be paid should you choose to surrender or cancel your life insurance policy before death.

Term Life Insurance

Coverage for a term of one or more years. Benefits will be paid if you die during that period. Some term insurance can be renewed at the end of the term. The premium rates usually increase with your age at each renewal.

Underwriting

The process of examining, accepting, or rejecting insurance risks and classifying those selected in order to charge the proper premium. The purpose of underwriting is to spread the risk among a pool of insured people in a manner that is equitable for those insured and profitable for the insurers.

Universal Life Insurance

A variation of whole life insurance which allows you, after your initial payment, to pay premiums at any time in virtually any amount, subject to certain minimums and maximums. You can also reduce or increase the amount of death benefit more easily than under a traditional whole life policy.

Variable Life Insurance

A variation of whole life insurance which provides death benefits and cash values that vary with the performance of an underlying portfolio of investments. The cash value of a variable life policy is not guaranteed, and the policy holder bears the risk.

Viatical Settlement

A transaction in which the owner of a life insurance policy with a terminal illness sells his or her life insurance policy for a certain percentage of the face value of the policy to provide immediate cash.

Whole Life Insurance

Coverage for the insured's entire life, as long as the premiums are paid.

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*Some definitions taken from Barron’s financial & business guides

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