360 Key Terms: Our Exclusive Consumer-Friendly Life Insurance Glossary
Navigating life insurance terms doesn't have to be daunting. Our Life Insurance Analyst and CLU® professionals have compiled a consumer-friendly glossary (each term simplified by us), breaking down the key terms you'll encounter during your life insurance review.
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1035 Exchange
This is a provision in the tax code which allows you, as a policyholder, to transfer funds from a life insurance, endowment or annuity to a new policy, without having to pay taxes on any gains.
Absolute Assignment
This is when you transfer your entire life insurance policy to someone else, giving them full control and all the rights related to the policy.
Absolute Ownership
When you have complete control over your life insurance policy, including choosing beneficiaries and how they receive payments, without any restrictions.
Accidental Death Benefit
An extra feature in a life insurance policy that pays more money if the insured person dies because of an accident. Sometimes, it can pay double or even triple the policy's amount.
Account
The cash-value investment funds within a life insurance policy, such as variable or universal life insurance.
Accumulated Dividends
Dividends from your policy that you leave with the insurance company to earn interest. The dividends aren't taxed, but the interest is.
Actuarial Assumptions
Estimates made by insurers (based on statistics about death rates, interest, and expenses) to set premium rates and project future payouts.
Actuarial Cost
The estimated cost of an insurance policy calculated using actuarial assumptions and reduced to present-day values.
Actuarial Equivalent
Different life insurance policies or annuities that are mathematically equal in value, even if they have different features or terms.
Actuarial Present Value
The current value of future payments from an insurance policy, adjusted for interest rates and the probability of receiving those payments.
Actuary
A highly-trained professional who uses mathematics, statistics, and financial theory to study uncertain future events, especially those of concern to insurance companies.
Additional Death Benefit
Extra money paid out by a life insurance policy if the insured dies in certain conditions, like accidental death.
Additional Premium
Extra money paid on top of the regular premium for certain insurance policies, like universal or variable life insurance.
Additional Provisions
Extra terms and conditions in a life insurance policy that add to the protections or options for the policyowner.
Adhesion
A type of contract where one party has no ability to negotiate terms and must accept the contract as is. Life insurance policies are contracts of adhesion.
Adjustable Death Benefit
An option in some life insurance policies that allows the policyowner to increase or decrease the death benefit, within certain limits.
Adjustable Life Insurance
A flexible life insurance policy that allows the policyowner to change the premiums, death benefits, and coverage duration to meet their needs.
Adjustable Premium
In some policies, the insurance company can change the premium payments under certain conditions, or the policyowner can adjust scheduled premiums.
Adjusted Gross Estate
The total value of a deceased person's estate minus debts, funeral costs, and administrative expenses, used to calculate estate taxes.
Adjusted Taxable Gifts
The total value of taxable gifts made after 1976 that are not included in a deceased person's gross estate.
Administrator
The person appointed by a court to manage the estate of someone who died without a valid will.
Admitted Assets
Assets of an insurance company that are counted to determine the company's financial health under state law.
Advanced Life Underwriter
An insurance agent who has specialized knowledge in areas like estate planning, retirement planning, and business insurance.
Advance Premium
Premiums paid before they are due.
Adverse Selection
The tendency of people with a higher risk of loss to seek or continue insurance coverage more than those with lower risks.
AG 38 Reserve
A reserve value used for a universal life insurance policy with a no-lapse secondary guarantee.
Age
The age of an insured person used by insurance companies to determine premiums and coverage.
Age at Issue
The age of the insured when the insurance policy starts.
Age Limits
The minimum and maximum ages at which an insurance company will issue or renew a policy.
Agency
The relationship where one party, the agent, is authorized to act on behalf of another, the insurer, in dealing with third parties.
Agent
A person who sells and services insurance policies on behalf of an insurer.
Agent of Record
The agent who initially sold the policy and is entitled to any commissions on the policy.
Aggregate Mortality Table
A table showing death rates at each age, based on all insurance policies in force, without considering the duration of the policies.
Aleatory Contract
A contract where the outcome depends on an uncertain event, and one party may receive significantly more in benefits than what was paid in premiums, as in life insurance.
Alternate Valuation Date
An option for valuing an estate's assets six months after the decedent's death instead of on the date of death, for tax purposes.
Amount at Risk
The difference between the face value of a life insurance policy and its cash value.
Annual Premium
The yearly amount required to keep a life insurance policy in force.
Anti-Rebate Laws
Laws that prohibit giving part of the insurance premium or other incentives back to the insured as an inducement to buy the policy.
Applicant
The person applying for an insurance policy.
Application
A form filled out by the applicant and the agent, providing the insurer with necessary information to decide on issuing a policy.
Assign
To transfer a right or risk.
Assignee
The person or party receiving the transferred rights or risks of an insurance policy.
Assignment
The transfer of rights and benefits of a life insurance policy from the policyowner to another party.
Assumed Interest Rate
The interest rate used by an insurance company to calculate its reserves.
Attained Age
The age an insured person has reached, used for determining premium rates.
Automatic Premium Loan Provision
An option allowing the insurer to borrow from the policy's cash value to pay an overdue premium, preventing the policy from lapsing.
Aviation Exclusion
A provision excluding coverage for deaths caused by aviation accidents unless the insured was a passenger on a scheduled commercial flight.
Back-End Load
A charge deducted when a policy is surrendered, typically decreasing each year and disappearing after a specified period.
Banding
Grouping policies into size categories to determine premium rates, with larger policies generally receiving lower rates.
Beneficiary
The person or entity designated to receive the death benefit from a life insurance policy.
Binding Receipt
A receipt assuring the applicant that coverage is in place if the policy would have been issued as applied for, had the insured not died before receiving the policy.
Broker
A person who represents the customer in purchasing insurance and can buy policies from almost any insurer.
Brokerage Agency
An agency servicing business from agents other than full-time agents of the represented company.
Broker-Agent
A licensed entity authorized to offer both insurance and securities products to the public.
Business Insurance
Coverage designed to protect a business from financial loss due to the death or disability of key employees.
Buy-Sell Agreement
An agreement where the business or surviving owners buy the shares of a deceased or retiring owner at a pre-agreed value.
Capital Conservation Method
A method of determining how much income a given amount of capital will produce, assuming only the earnings on the principal will be used.
Capitalization of Policy Loans
Increasing the policy loan amount to cover unpaid loan interest.
Capital Needs Analysis
An assessment of financial needs met through the economic value and income-producing capabilities of current and future assets.
Capital Stock Insurance Company
An insurance company owned by its shareholders, similar to how IBM is owned by its shareholders.
Capital Utilization Method
A method of determining how much income a given amount of capital will produce, assuming both the earnings and principal will be used.
Captive Insurance Company
A licensed insurance company created to write insurance for a specific business or group of businesses.
Cash Accumulation Policy
A life insurance policy that builds significant cash value or equity.
Cash Surrender Value
The amount available to the policyowner when a life insurance policy is surrendered, also the basis for a policy loan.
Change of Beneficiary Provision
A provision giving the policyowner the right to change the beneficiary at any time.
Classified Risk
A risk classification used to determine premium rates, with "standard" risks being average and "substandard" or "preferred" risks falling above or below average.
Clause
A specific provision in a life insurance contract dealing with a particular subject.
Collateral Assignee
The person or party receiving a transferred right when a life insurance policy is assigned as security for a debt.
Collateral Assignment
A temporary transfer of a life insurance policy to a creditor as security for a debt.
Collateral Assignment Plan
A variation of a split-dollar life insurance arrangement where the insured owns the policy but assigns it as security for premium payments made by another party.
Collateral Loan
A loan guaranteed by the life insurance policy used as collateral.
Commission
The percentage of the premium paid to an insurance agent or broker as compensation.
Commissioner
The head of a state insurance department who supervises the insurance business in the state.
Commissioners Standard Ordinary Mortality Table (CSO)
A standard mortality table used in life insurance rate calculations.
Commissions, Graded
A commission arrangement where larger commissions are paid to the agent during the first policy year.
Commissions, Level
A commission arrangement where equal amounts are paid over several years.
Commutation Rights
The right of a beneficiary to receive a lump sum of the remaining future payments under a settlement option.
Commute
To compute and pay the lump-sum equivalent of future payments under a life insurance contract.
Commuted Value
The present value of a series of future payments, discounted based on interest and mortality factors.
Compound Interest
Interest earned on both the principal amount and the interest already earned.
Concealment
Intentionally failing to disclose a material fact to the insurance company when applying for insurance.
Conditional Assignment
An assignment made to secure a debt, which terminates automatically when the debt is repaid.
Conditional Premium Receipt
A receipt given when the premium is paid at the time of application, providing interim coverage until the application is approved or declined.
Consideration
An essential element of a binding contract, in life insurance, the policyowner's consideration is the first premium payment and the application.
Contestable Clause
A provision stating the insurer's right to contest or void the policy within a specific time, usually two years.
Contingent Beneficiary
A beneficiary who receives the death proceeds if the primary beneficiary predeceases the insured.
Contract of Insurance
A legally binding agreement where an insurer agrees to pay a death benefit upon the insured's death in return for payment of premiums.
Contract Rates
Guaranteed rates at which the policyowner's dollars can be converted into annuity payouts.
Conversion
The exchange of one type of life insurance policy for another, such as converting term insurance to whole life.
Conversion, Attained Age
Premiums for the converted policy based on the insured's age at the time of conversion.
Conversion, Original Age
Premiums for the converted policy based on the insured's age at the original policy issue date.
Convertible
A provision allowing the policyowner to exchange the policy for another without evidence of insurability.
Convertible Term Insurance
Term insurance that can be converted to a permanent policy without a medical exam, within a specified period.
Cost of Insurance
The value of pure insurance protection in any year for certain insurance arrangements, such as split-dollar plans.
Cost of Living Adjustment (COLA)
A rider providing automatic, periodic increases in benefits based on inflation.
Credit Life Insurance
A policy covering a borrower's life, with the creditor as the beneficiary, to repay a loan if the borrower dies before repayment.
Cross Purchase
A buy-sell arrangement where surviving owners buy the shares of a deceased owner, often funded with life insurance.
Crummey Power
A trust provision allowing a beneficiary to demand a portion of a gift to qualify for the annual gift tax exclusion.
Current-Assumption Policy
A policy reflecting the insurer's current interest, mortality, and expense experience directly in cash value credits and charges.
Current Interest Rate
The interest rate credited to current-assumption and universal life products.
Current Value
The present market value of a security or other property.
Date of Maturity
The date when a life insurance policy endows if the insured is still living.
Date of Policy
The date when a life insurance policy goes into effect.
Death Benefit
The amount payable upon the insured's death.
Death Claim
The form submitted by the beneficiary, along with a death certificate, to the insurer to claim the policy proceeds.
Deficiency Reserve
A reserve required for policies with secondary guarantees, when the minimum reserves exceed basic reserves.
Declared Interest Rate
The interest rate credited to cash value in universal life policies, which may be higher than the guaranteed minimum rate.
Decreasing Term Insurance
Term insurance with a face value that decreases over time, while premiums usually remain level.
Default
Failure to pay a premium by the final due date or at the end of the grace period, causing the policy to lapse.
Delivery of Policy
Presenting the policy to the policyowner, which may be done physically or through verbal acknowledgment.
Dependency Period
The years when children are dependent on their parents, usually until the youngest child is 18 years old.
Disability Premium Waiver Insurance
A rider that waives premiums if the insured becomes totally disabled for six months or longer.
Dividend
A return of excess premium payments to policyowners of participating policies, considered a return of capital.
Dividend Additions
Using dividends to purchase paid-up additional insurance at the insured's attained age.
Dividend Class
Grouping policyowners into classes based on contract type and age for precise dividend distribution.
Dividend Deposits
Cash dividends and interest left on deposit with the insurer under a dividend option.
Dividend, Extra
An additional dividend paid on top of regular periodic dividends.
Dividend Options
The ways in which policyowners can choose to receive dividends, like cash payments, premium reductions, or purchasing additional insurance.
Divisible Surplus
The company’s surplus earnings available for distribution as dividends to policyowners.
Double Indemnity
A provision in a life insurance contract that pays double the death benefit if death occurs under certain circumstances, like an accident.
Human Life Value
A method to estimate how much life insurance you need based on your future earnings and expenses.
General Account
An insurance company’s main investment portfolio, often used to determine the return rate for universal life policies.
Grace Period
A 30 or 31-day period after a premium due date during which you can still pay the premium without losing coverage.
Graded Death Benefits
A policy feature where the death benefit increases over time.
Graded Premium Life Insurance
Insurance with low initial premiums that gradually increase, leveling off after a set period.
Gross Premium
The total premium paid, including the cost of insurance and operational expenses.
Group Life Insurance
Life insurance covering a group of people, usually without medical exams, often provided by employers or unions.
Guaranteed Cash Value
The assured amount available if you surrender your policy, as shown in a value table.
Guaranteed Cost
Another term for nonparticipating insurance, where costs are capped.
Guaranteed Insurability Rider
An add-on that lets you buy more insurance later without proving you’re insurable.
Guaranteed Interest Rate
The minimum annual interest rate credited to your policy’s cash value.
Guaranteed Purchase Option
See: Guaranteed Insurability Rider.
Face Amount
The amount your policy will pay out if you pass away, shown on the policy's front page.
Fair Market Value (FMV)
The price at which property would sell between a willing buyer and seller, both knowing the relevant facts.
Family Income Policy
A life insurance policy that provides income if the breadwinner dies within a certain time. The family gets monthly income until the end of that period, plus the policy’s face amount.
Family Income Rider
Like a family income policy, but added to a whole life policy as a supplement.
Family Maintenance Policy
A policy combining level term insurance and whole life insurance. If the insured dies within a set period, the family gets monthly income until the end of that period, plus the face amount.
Family Policy
A policy combining whole life and term insurance to cover each family member.
Family Rider
An add-on to a policy that insures family members, usually a spouse and children.
Fifth Dividend Option
An option to use annual dividends to buy one-year term insurance and apply any leftover to other dividend options.
Final Expenses
Costs related to a last illness, funeral, burial, debts, and taxes needed to settle an estate.
First-Year Premium
The premium you pay during the first policy year.
Fixed-Amount Settlement Option
An option for beneficiaries to receive the policy payout in fixed-dollar installments.
Fixed-Period Settlement Option
An option for beneficiaries to receive the policy payout over a fixed period.
Flexible Premium Variable Life
See: Variable Universal Life Insurance.
Fraternal Insurance
Insurance provided by a fraternal benefit society, which requires membership.
Fraud
Knowingly making a false statement to benefit financially, causing hardship to another.
Free-Look Provision
A clause allowing you to review a new policy for a set time (usually 10 days) and return it for a full refund if you’re not satisfied.
Front-End Load
When some insurer expenses are deducted from the initial premium before the rest goes into the cash value account.
Full Disclosure
The requirement to give buyers all necessary information about charges, costs, and features of life insurance policies.
Fully Insured Plan
Pension plans funded entirely through individual insurance contracts that provide death and retirement benefits.
Earned Premium
The portion of the premium that compensates the insurance company for its loss experience, expenses, and profit year to date.
Economic Benefit
The amount of insurance protection provided to an insured employee under a split-dollar or other employer-provided insurance plan.
Emergency Fund
A fund for emergencies calculated when determining life insurance needs, similar to a reserve for unexpected expenses.
Endorsement
A written modification to an insurance policy, usually attached to and made a part of the policy.
Endow
When a life insurance policy's cash value equals its face amount, and the policyowner receives the face amount in cash.
Endowment
A life insurance contract paying the face amount at the end of a fixed period, a specified age, or upon the insured's death.
Evidence of Insurability
Proof of a person's health, occupation, etc., affecting the acceptance of the applicant for insurance.
Exceptions Provision
A provision limiting the insurance company's liability by excluding coverage for certain losses.
Excess Initial Expenses
First-year expenses exceeding the first-year expense loading, often due to higher first-year commission rates.
Excess Interest
The difference between the guaranteed interest rate and the higher interest actually paid on policy proceeds left with the insurer.
Exclusion Clause
A policy provision excluding certain risks from coverage, like aviation or war.
Executor
The person appointed in a will to carry out its terms.
Expense Charge
Fixed amounts or percentages deducted from premiums and cash value in variable universal life, universal life, and other current-assumption policies.
Expense Loading
The amount added to the premium to cover the insurer's expenses, like commissions and administration.
Experience
The loss record of a type of insurance, used to adjust premium rates and predict future losses.
Experience Modification
Adjusting premiums based on the application of experience rating, usually expressed as a percentage.
Extended Term Option
A nonforfeiture option allowing the net cash surrender value to be used as a single premium to buy term insurance for
Extra Dividend
A bonus dividend paid on top of the regular ones.
Extra Premium
An additional fee charged for higher-risk circumstances.
Extra Protection Benefit
A feature in some insurance policies that pays more if you die within a certain period.
Incidents of Ownership
Rights such as changing the beneficiary or making policy loans, which can affect estate taxes.
Incontestable Clause
See: Contestable Clause.
Increasing Term Insurance
Term insurance where the face value increases over time.
Indexed Universal Life Insurance
A policy where the cash value growth is tied to stock indexes, offering a minimum interest guarantee.
Indeterminate Premium
Policies with premiums that can vary but have a maximum limit.
Individual Life Insurance
Insurance covering one person, sometimes with added riders for family members.
Initial Death Benefit
The original face value of a flexible feature life insurance policy.
Initial Premium
The first premium payment, due with the application or policy delivery.
Initial Reserve
The reserve amount at the start of the policy year, including the previous year’s ending reserve and the annual net premium.
Installment Settlement
Receiving policy proceeds in periodic payments instead of a lump sum.
Insurability
Conditions that affect your risk level and eligibility for insurance.
Insurable Interest
A person’s potential to benefit from another’s continued life or suffer a loss at their death.
Insurance Reserves
Funds set aside by insurers to cover future claims.
Insured
The person or group covered by an insurance policy.
Intentionally Defective Grantor Trust
A trust designed to make the grantor pay taxes on its income, as if assets weren’t transferred.
Interest-Adjusted Cost Method
A way to compare policy costs by considering the time value of money.
Interest Factor
An estimate of the average interest insurers expect to earn on invested premiums.
Interest-Only Option
Leaving policy proceeds with the insurer to earn interest, which is paid out periodically.
Interest-Sensitive Whole Life
Whole life insurance where the cash value grows based on current interest rates.
Interim Term Insurance
Temporary insurance from application submission to policy approval or rejection.
Interpolated Terminal Reserve
A reserve fund to cover a specific policy’s liability, used for gift tax purposes.
Investment Account
A separate cash value investment fund within variable life policies.
Investment Portfolio
A detailed list of owned securities, including equity-based accounts in variable products.
Investment Year Method of Dividend Calculation
Calculating dividends based on the interest rates earned in the year the investment was made.
Issue
The insurance company’s approval and delivery of new policies.
Issue Limit
The maximum coverage amount an insurer will provide for a risk.
Key Employee Insurance
Coverage to help a business cope with the financial loss from a key employee’s death or disability.
Joint and Survivorship Option
A payment option where policy proceeds are paid out as a joint and survivor annuity.
Joint Control
A policy provision giving another person or entity joint rights with the insured to exercise policy options.
Joint Insurance
A contract covering two or more lives, paying out at the first death.
Juvenile Insurance
Life insurance for minors, with parents or grandparents as policyowners.
Yearly Renewable Term Insurance
A 1-year term policy that can be renewed each year at higher premiums based on age, without new health evaluations.
Paid-Up Additions
Using dividends to buy additional insurance.
Paid-Up Policy
A policy with completed premium payments but not yet matured.
Partial Withdrawals (Surrenders)
Taking a portion of the cash value without terminating the policy.
Participating Insurance
Insurance that shares company surplus with policyowners through dividends.
Payor
The person paying the policy premiums.
PERC Value
A formula to determine a policy’s income tax value.
Permanent Insurance
Life insurance that lasts for life and builds cash value.
Persistency
The rate at which policies remain in force over time.
Pledge
Using policy cash values as loan collateral.
Policy
The written contract between the insurer and policyowner.
Policy Anniversary
The yearly anniversary of the policy’s issue date.
Policy Change Provision
A clause allowing you to change coverage types without proving insurability.
Policy Date
The date when coverage starts.
Policy Fee
An annual or one-time charge for policy administration.
Policyholder
The person having possession of the policy, regardless of ownership.
Policy Loan
Borrowing money from the policy’s cash value.
Policy Maturity Date
The date when a policy matures and the cash value is paid instead of the death benefit.
Policyowner
The person with ownership rights in the policy.
Policy Period
The duration of coverage.
Policy Proceeds
The amount payable to the beneficiary or policyowner.
Portfolio Method of Dividend Calculation
Calculating dividends based on the average interest rate of the total investment portfolio.
Preferred Risk
A person qualifying for lower premiums due to better-than-average life expectancy.
Preferred Risk Policies
Policies with lower premiums for better-than-average risks.
Preliminary Term Insurance
Temporary term insurance attached to a new permanent policy until it becomes effective.
Premium
The regular payment required to keep the policy in force.
Premium Loan
Paying the premium by borrowing against the policy’s cash value.
Premium Mode
The frequency of premium payments.
Premium Payment Period
The number of years premiums are paid.
Premium Refund
A return of premium due to cancellation or overpayment.
Primary Beneficiary
The first person designated to receive policy proceeds.
Proceeds
The net amount payable by the insurer upon death or policy maturity.
Prohibited Provisions
Policy terms not allowed by state law.
Protection
The amount of insurance coverage provided by the policy.
Pure Endowment
A contract paying only if the insured survives to a certain date.
Offer and Acceptance
The process of applying for and approving an insurance policy.
Optional Benefit
An additional feature added to a policy for an extra premium.
Optional Paid-Up Insurance
A nonforfeiture option to use cash value to buy paid-up insurance.
Override
An additional commission paid to a general agent or manager.
Ownership Provision
A clause stating who owns the policy if not the insured.
National Association of Insurance Commissioners (NAIC)
An organization promoting uniform insurance laws and regulations.
Net Amount at Risk
The difference between the face amount and the policy’s cash value.
Net Cost
The actual cost of insurance after dividends are deducted.
Net Level Premium
The average annual premium cost over a policy’s life.
Net Premium
The insurance cost minus expenses and contingencies.
New Money Interest Rate
See: Investment Year Method of Dividend Calculation.
Nonassignable Contract or Policy
A policy that cannot be legally transferred to a third party.
Nonconvertible Term Insurance
Term insurance that cannot be converted to a permanent policy.
Nonforfeiture Values
Policy benefits you keep even if you stop paying premiums.
Nonmedical Insurance
Insurance issued without a medical exam, based on the applicant’s answers and references.
Nonparticipating Life Insurance
Insurance that doesn’t pay dividends to policyowners from the surplus of the life insurance company.
Nonrenewable Contract
A policy that cannot be renewed after its term ends.
Nontransferable
A contract’s benefits cannot be sold or used as collateral.
Mature
When a policy becomes payable, typically at death or at a defined age.
Medical Information Bureau (MIB)
A database of medical data shared among insurance companies to prevent fraud.
Minimum Premium
The smallest premium required in the first year of a universal life contract.
Minor Beneficiary
A beneficiary under the legal age of majority, requiring a legal guardian for financial transactions.
Misrepresentation
Knowingly making a false statement to influence the insurance company.
Misstatement of Age
Incorrectly stating someone’s age on an insurance application.
Mode of Payment
The frequency of premium payments (e.g., annually, semiannually).
Modified Life Insurance
Whole life insurance with lower premiums for the first few years.
Moral Risk
Factors like habits and reputation that affect insurability.
Mortality Factor
An estimate of average deaths used to calculate premiums.
Mortality Risk
The risk of death for an insured person.
Mortality Table
A chart predicting life expectancy based on age and sex.
Multiple Life Policy
Insurance for several people, paying out at each death except the last survivor.
Mutual Company
An insurance company owned by its policyowners.
Lapse
Policy termination due to nonpayment of premiums or insufficient cash value.
Last to Die "Survivorship" Insurance
A contract paying out only after the last insured person dies.
Level Premium
A premium that stays the same throughout the policy’s life.
Level Term Insurance
Term insurance with a fixed face value.
Life Expectancy
The average remaining lifespan for a person of a given age, based on statistics according to probability statistics of a mortality table.
Life Income Option
A settlement option where proceeds buy an annuity payable for the beneficiary’s life.
Life Income with Period Certain Option
An option guaranteeing a minimum number of payments, even if the beneficiary dies.
Life Paid-Up at Age ( _ ) Insurance
Limited payment life insurance where premiums stop at a specified age.
Life Settlements
Selling your life insurance policy to a third party for a lump-sum payment.
Limited-Payment (Limited-Pay) Policy
Life insurance with premiums paid for a period of years less than the period of protection provided under the policy.
Loading Charge
An added charge to cover the policy's overhead costs, required by actuarial tables to cover mortality and interest factors.
Loan
Money borrowed from your policy’s cash value.
Loan Value
The amount you can borrow from your policy’s cash value.
Lump Sum
Paying the entire policy proceeds at once.
Waiver of Premium Provision
See: disability premium waiver insurance.
Waiver of Premium with Disability Income Rider
A rider that waives premiums and pays a monthly income if the insured becomes totally and permanently disabled.
War Clause
A clause limiting the insurer’s liability for losses caused by war.
Warranties and Representations
Statements made by an applicant that are considered representations unless fraudulent, meaning they don’t have to be literally true.
Whole Life Insurance
Life insurance providing lifelong coverage with premiums paid continuously or for a limited period.
Variable Death Benefit
A death benefit in variable life policies that fluctuates based on the policy’s cash value.
Variable Life Insurance
Life insurance with a guaranteed minimum death benefit that can increase based on investment performance.
Variable Universal Life Insurance
A universal life policy with flexible premiums and separate investment accounts.
Viatical Settlement
Selling a life insurance policy to a third party for a lump sum, usually because the insured has a terminal illness.
Target Premium
The annual premium needed for a universal life policy to stay in force under expected conditions.
Tax Reserve
The reserve value used for calculating an insurance company’s federal income tax.
Temporary Level Extra Premiums
Higher premiums charged temporarily for risks considered short-term.
Term Contract or Policy
Life insurance that provides coverage for a specific period with no residual value if the insured survives the term.
Terminal Dividend
Dividends that may be paid when a policy ends due to death, surrender, or maturity.
Termination
When a policy ends and no more premiums are due; it can occur due to non-payment or surrender for cash value.
Term Insurance
Life insurance that lasts for a specific period and has no value if the insured outlives the term.
Term Insurance Rider
Additional term life insurance attached to a permanent policy to increase coverage.
Term of Policy
The duration a policy is in effect, depending on its type.
Term to Age ( )
Long-term life insurance that lasts until a specified age, without residual value if the insured survives.
Third-Party Ownership
A life insurance policy owned by someone other than the insured or the beneficiary.
Traditional Net Cost Comparison Method
A way to calculate a policy’s cost over time by adding premiums and subtracting dividends and cash value.
Traditional Product
Life insurance with fixed premiums, death benefits, and cash value growth.
Scheduled Premium
The selected premium in variable and universal life policies.
Secondary Guarantee Universal Life
A policy guaranteeing a death benefit for a set period with low premiums.
Section 79 Plan
A group-term life insurance plan with favorable tax treatment under Section 79 of the Internal Revenue Code.
Section 162 Plan
This is a type of life insurance where the employer pays for the policy, but the employee owns it and can name the beneficiary.
Section 419(e) Medical Benefit Plan
This plan helps businesses cover the medical costs of retirees.
Select Mortality Table
A chart that shows lower death rates soon after a policy is issued because insurers screen out high-risk applicants.
Separate Account
An investment account kept separate from the insurer’s general funds, mainly for variable products.
Settlement
This is the payment of an insurance claim where both the policyholder and insurer agree on the amount and method of payment.
Settlement Dividend: An extra dividend paid when a policy ends due to death, surrender, or maturity.
Settlement Options
Different ways the beneficiary can receive the policy’s proceeds, like a lump sum or installment payments.
Single-Premium Policy
A life insurance policy that's fully paid with one lump-sum premium.
Spendthrift Provision
A policy feature protecting the payout from the claims of creditors.
Split-Dollar Insurance
A policy where two parties, like an employer and employee, share the costs and benefits.
Standard Policy
An insurance policy issued with normal terms and rates, without special restrictions.
Standard Risk
A person who meets the typical underwriting criteria for standard insurance rates.
Statutory Reserve
The reserve value reported by an insurance company in its financial statement to the state insurance department, which may differ due to interest rates.
Stock Company
An insurance company owned by stockholders rather than policyowners.
Substandard Insurance
Insurance offered at higher rates to applicants with higher-than-average risks.
Substandard Risk
A person whose risk of mortality is higher than average for their age due to health issues, high-risk occupations, or risky hobbies.
Suicide Provision
A policy clause stating that if the insured commits suicide within a set period, usually one or two years, the insurer only refunds the premiums paid.
Supplemental Term Insurance
Extra term life insurance added to a base policy to increase coverage.
Surplus Account
The difference between a company’s assets and liabilities, including funds set aside for dividends and contingencies.
Surrender
Returning a policy to the insurer in exchange for its cash value.
Surrender Charge
A fee in variable or universal life policies for cashing out early to cover the insurer's costs.
Surrender Dividend
An extra dividend paid when a policy ends, similar to a terminal dividend.
Surrendered Policy
A policy that has been returned and terminated, generally with some cash value given back to the policyholder.
Ratable Charge Method
Accounting for policy values and premiums on a straight-line basis.
Rated Policy
A policy issued at higher premiums due to higher risk.
Rating
The premium classification for a person applying for insurance.
Rebating
Returning part of the agent’s commission to the policy purchaser, often illegal.
Reduced Paid-Up Option
Using cash surrender value to buy a reduced amount of paid-up insurance.
Re-Entry Term
Renewable term insurance with periodic evidence of insurability for lower premiums.
Reinstatement Provision
A clause allowing a lapsed policy to be reinstated under certain conditions.
Renewable and Convertible Term
Term insurance that can be renewed or converted to permanent insurance.
Renewal
Continuing policy coverage beyond its original term or paying premiums after the first year.
Renewal Commission
The commission paid to an agent for premiums after the first policy year.
Renewal Premium
Premiums due after the first policy year.
Reportable Economic Benefit Cost (REB)
The cost of life insurance death benefit protection in a split dollar arrangement or qualified plan.
Representations
Statements made by an applicant, believed to be true, but not guaranteed.
Required Provisions
Mandatory clauses in insurance policies under state law.
Reserve
Funds held by the insurer to meet future claims.
Reserve Basis
The assumptions used to calculate premiums and reserves.
Retirement Income Policy
A policy designed to build cash values for retirement income.
Retroactive Conversion
Converting a term policy to permanent insurance with premiums backdated to the original issue age.
Return of Premium Rider
An add-on paying the sum of all premiums if the insured dies within a specified term.
Rider
An attachment modifying the policy’s benefits or coverage.
Risk Factor
Factors like age, sex, and health used to calculate premiums.
Ultimate Mortality Table
A chart showing average life insurance experience after initial selection benefits fade.
Unbundled Fees
Clearly stated and explained costs and deductions in universal or variable life insurance policies.
Underwriter
The person who reviews and accepts or declines insurance applications and assigns rates.
Unearned Premium
The portion of the premium that applies to the remaining period of coverage.
Uniform Policy Provision
A standard clause required by state law in all insurance contracts of a given type.
Uniform Simultaneous Death Act
A law stating that if the insured and beneficiary die at the same time, it's assumed the insured died last, so proceeds go to the next beneficiary.
Unilateral Contract
A contract where only one party, like the insurance company, can be sued for breach.
Universal Life
Flexible life insurance with adjustable premiums and death benefits, separating protection from cash value accumulation.
CLU® (Charted Life Underwriter) – The premier designation for life insurance professionals. The CLU® is the life insurance profession’s oldest standard of excellence, since 1927. Today, it continues to be the credential for practitioners to shows their expertise in life insurance, estate planning, and business planning. With particular emphasis placed on ethics and commitment to clients, the CLU® is widely regarded as the gold standard of life insurance professionals and insurance planning.
The glossary terms displayed on our website are solely for information purposes. Nothing contained herein should be considered as legal, insurance, investment or tax advice. The terminology and definitions provided on our website derive from third-party sources believed to be reliable and accurate at the time the information was retained. LifeInsuranceReview.com (LIR) is not responsible for errors or omissions in the glossary and does not necessarily approve of or endorse the information provided. For questions or to report in known material inaccuracies, please contact us.