Life Insurance Terms You Should Know

If you're looking for life insurance, you may see terms you aren't familiar with being used by insurance companies and others. Not knowing these life insurance terms can make purchasing the best coverage for you and your unique situation challenging. To clear up any confusion over these terms, browse the life insurance glossary terms below. 

Life Insurance Glossary

Advanced Premium

This is when you've made a payment on your premium before it's due. Generally, this money is held in an account by your insurance provider until your premium payment comes due. At that point, it's transferred over for payment. In certain conditions, advanced premium funds can be withdrawn by you from the holding account.

Accelerated Death Benefits

These are benefits before the insured's death, generally accessible in the event of a terminal or chronic illness.

Accidental Death Insurance

This type of benefit is add-on coverage, which is only paid out if the insured passes away due to an unforeseeable accident. 

Amount of Insurance

Also sometimes referred to as the "face amount," this is how much life insurance you've purchased.

Annual Renewal Term

This is a type of term life insurance that automatically renews annually. However, these policies generally have an increased premium each year they're renewed.

Beneficiary 

This person, company or other entity receives the life insurance benefit when the covered person passes away. 

Cash Value

Some life insurance policies (like universal life or whole life policies) accumulate a cash value against which you can take out a loan. However, it's important to note that borrowing against your life insurance policy's cash value could affect how much money your beneficiaries receive. In some cases, it can also increase your premium amounts. 

Cash Surrender Value

This is how much money your insurance provider would pay you if you voluntarily terminate your life insurance policy before your death or the time when your policy has fully matured. Cash surrender value only applies to specific policy types that earn cash value and may not apply to all policies. 

Contingent Policy Owner

This person becomes the policy owner after (or if) the original policy owner passes away. 

Conversion

Occurs when some (or all) of your term life insurance has been exchanged into a cash value life insurance policy. 

Death Benefit

This is how much money your named beneficiary will be paid when you pass away.

Dividend

A portion of a life insurance company's profits that might be paid to policy owners with a life insurance policy; this is generally only applicable for those carrying whole life insurance policies. 

Endorsement

Also sometimes called a "rider," this is add-on coverage to your policy that provides extra exclusions or benefits. Sometimes an endorsement requires a higher premium or, in a few cases, a second premium amount is paid on top of your normal one. 

Extended Term Insurance

This nonforfeiture option is only available if you have a whole life policy. In the event of non-payment, any cash value built up in your policy would be taken to purchase term life insurance that would ensure you have coverage for a set amount of time. That time is determined by how much cash value you built up and the total costs of the term life insurance purchased. 

Final Expenses

Expenses that incur at the time of the insured's death, including current bills, debts, and funeral costs. 

Grace Period

A time period after your premium payment's due date where your policy won't be canceled without payment. 

Group Life Insurance

Generally offered by an employer or large organization as part of a larger benefits package. It may provide better rates than personal policies. 

Illustration

Hypothetical projections depicting a life insurance policy's performance over time. 

Insured

The person whose life is insured by the policy. This doesn't have to be the same person as the policy owner. 

Intestate

This is what it's called when a person passes away without having written a will. 

Joint First-To-Die

This type of life insurance policy provides coverage for two people, usually married partners. It begins making payments to the surviving party as soon as the first one dies and is often used to help cover estate tax expenses. 

Lapse

A lapsed policy is no longer active because a payment hasn't been made. 

Limited Pay

A type of whole life insurance where you only pay premiums for a limited number of years but your coverage lasts indefinitely. 

Nonforfeiture Options

Policy provision detailing how the policy's cash value can be applied if payments aren't made. 

Non-Participating Policy

This is a type of life insurance policy that doesn't receive dividends. 

Paid-Up Insurance

A nonforfeiture option available only on whole life policies detailing the life insurance available without premiums coming due. Insurance is "paid up" only when it accrues enough cash value to cover premium payments for a set amount of time. 

Participating Policy

This type of life insurance policy can receive dividends, although they aren't guaranteed. 

Policy Loan

A loan you can receive (in some circumstances) from your life insurance provider based on the cash value accrued in your policy. Interest rates apply. 

Policy Owner

The person who owns the insurance policy. Although this is usually the same as the insured, it doesn't have to be. 

Premium

The regular payment you make to keep your policy active, which is typically paid monthly but may also be paid quarterly or annually based on your contract terms. 

Reinstatement

The ability to reactivate policies once they've lapsed due to non-payment. 

Risk Classification

The category an underwriter places you into based on numerous factors. Your risk classification (also known as your "underwriting class") determines your ability to purchase an insurance policy and the premium you'll pay. Risk classification may be based on age, health, hobbies, sports, gender and other lifestyle factors. 

Settlement Options

Options for how death benefits will be paid to any listed beneficiaries. Although this is generally a lump sum amount, it can also be paid in installments based on the policy owner's preference. 

Surrender

Complete cancellation of your policy, which means you're no longer covered. Some surrenders are eligible for cash value payments while others aren't. 

Term Life Insurance

A type of life insurance policy that provides coverage for a specified term. The term is generally 10, 20 or 30 years. 

Underwriter

The qualified professional who evaluates your life insurance application for potential exposures or risks to determine your risk classification, which can affect your policy options and premiums. 

Underwriting

The process used by an underwriter to determine your eligibility and risk classification. 

Universal Life Insurance

A type of life insurance offering flexible payments and adjustable death benefits. These policies also accrue cash value. 

Whole Life Insurance

A type of life insurance policy that offers fixed premiums and death benefits. These policies also have a guaranteed cash value and may receive dividends in some cases.