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Life Insurance Definitions | All The Important Terms

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Below you’ll find a complete glossary of life insurance terms, from a simple life insurance definition to more advanced terms you may hear or read on this site. If there is a term missing or you would like greater clarification, please don’t hesitate to contact us.

  • Life Insurance – a contract between a person and an insurance company, where the company agrees to pay a death benefit when the person dies

Alphabetical Glossary of Life Insurance Definitions

  • Actuary – in life insurance, an actuary measures the financial impact of dying based on age, gender, and risk
  • Agent – one who aids consumers in applying for life insurance by way of qualifying consumers, matching them to carriers, and applying in return for a commission from the carrier
  • Application – formal document submitted to an insurance company in request of a life insurance policy with contact information, beneficiary information, and medical questionnaires where necessary
  • Broker – another term for an agent who not captive, and can pursue quotes from multiple carriers on behalf of the consumer (see independent agent)
  • Captive Agent – type of agent who works for one carrier, the opposite of an independent agent
  • Carrier – another name for life insurance company (also: issuer, insurer)
  • Cash Value – accumulated amount of funds within a life insurance contract after the premiums are paid, usually consisting of excess premiums, dividends and interest, but also market returns where applicable
  • Commission – the fee paid to the agent by the insurance company when a consumer buys a life insurance policy
  • Conditional Receipt – temporary coverage agreement given to the consumer by the carrier when a formal application is supplied with the first months premiums, stating the applicant is temporarily covered for a period of time, usually the application process or 90 days
  • Contingent Beneficiary – the named entity to receive the death benefit if the first beneficiary (primary) has predeceased them
  • Death Benefit – the amount or value the insurance company is obligated to pay when the insured dies, less loans and fees due
  • Death Claim – the process and documents required of the beneficiary to file with the insurance company in order to request a payout of death benefit proceeds
  • Dividend – excess premiums paid to a carrier which are redistributed back to the policyholders who are entitled to receive the payment, although never guaranteed
  • Face Amount – the death benefit amount, or lump sum amount, which will be paid when the insured passes and a claim is verified
  • Grace Period – period of time where missed payments (premiums) are allowed to be caught up, and the insured is still covered
  • Incontestability – clause within a life insurance contract which states an insurance company has the right to verify the cause of death, which may void a claim for a number of reasons such as suicide within two years of approval
  • Independent Agent – type of agent who is not employed by one insurance company, but rather who offers policies through a variety of carriers (see broker)
  • Indexed Life – type of policy which is tied to an index fund
  • Insurability – the measure of whether or not a proposed insured is able to be approved, and at what rating or class
  • Insurable Interest – a requirement for approval where the proposed insured must have a reasonable interest to own the amount of insurance they are applying for, such things being mortgage protection, debts, replacement of income or other needs
  • Lapse – when a policy is foreclosed upon for lack of funds, liberating the insurance company of its contractual obligation to pay out a claim
  • Life Expectancy – the statistical age at which a person might be expected to die, based on age, gender and risk class
  • Modified Endowment Contract (MEC) – a modification in tax status for the cash value within a life insurance policy, whereas the deferment of taxes on growth and access ceases because the threshold of cash to death benefit ratio was exceeded
  • Mortality Rate – measure of deaths to scale for a certain demographic or risk class, such as 1 death per 1,000 or 1:1,000
  • Non-Participating – a life insurance policy which does not see benefit of returned premium (dividends) from an insurance company
  • Participating – a life insurance policy which may receive additional funds in form of dividends from an insurance company if they are given
  • Policy – the legal contract between the insurance company and the insured
  • Policy Loan – an amount of cash accessed by the policy owner which is taken from the cash value available within the policy, subject to interest until paid back
  • Policy Owner – the person who owns the policy, including the ability to modify it, access cash within it, or transfer it, but not always the same as the insured
  • Premium – the amount of money due from the owner of the policy in order to keep it current with the insurance company, usually in a monthly, quarterly or annual fee schedule
  • Primary Beneficiary – the first person in line to receive the death benefit upon the insured’s death, which may be split between multiple parties
  • Primary Insured – the person whose life is being covered, and the life for which the death benefit will pay when the person is deceased
  • Proceeds – the death benefit, or cash value, paid when the primary insured dies, paid in lump sum or streams of payment
  • Rating – for applicants, this is the risk class for which they are approved for by the insurance company, ranging from preferred plus to substandard
  • Reduced Paid-Up – when a cash value policy is modified to a term policy, the cash value within the policy pays for a permanent death benefit which does not require any new funds
  • Reinstatement – a lapsed policy which is brought back to in force status by the insurance company after all past due payments are received
  • Rider – additional benefits attached to a life insurance policy, which may or may not have additional costs tied to them
  • Survivorship Life – a life insurance type which spreads the death benefit across two lives, not just one
  • Term Life – a life insurance type where a single amount of premium is given in exchange for a stated death benefit
  • Underwriter – one who evaluates the risk of the proposed insured, approving or denying them based on medical documents, driving records, blood profiles, urinalysis and more
  • Underwriting – the process undergone by the insured of proving their level of risk to the insurance company before an offer can be made
  • Uninsurable – risk class whereby the insurance company can not make an offer because the risk of premature death of the proposed insured is too great
  • Universal Life – a life insurance type which has a cash value component, but not necessarily accessible in all ways
  • Variable Life – a life insurance type where the cash growth inside is wholly or partially tied to funds in the market
  • Viatical – also called a viatical settlement, the owner of a policy sells the current policy and all its rights to a party who, in exchange, gives immediate funds of a lower value
  • Whole Life – a life insurance type which is both permanent and has the most guarantees

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Jason Fisher

Jason Fisher is the founder and CEO of BestLifeRates.org, LLC. and a multi-state licensed life insurance agent who has helped over a million Americans seek out affordable coverage, compare quotes, or get their family and businesses covered.

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