Life Insurance Terminology 101 for Group & Individual Life Insurance Professionals

Glossary of Life Insurance Terminology

Life insurance provides a fantastic cross-selling opportunity to individual health insurance, group benefits, and senior insurance advisors. This blog is a compilation of the most common, need-to-know life insurance terms that insurance professionals can use and share with their prospects and clients while demonstrating the value of life insurance.

We’ve broken this list down into two categories:

• Types of Life Insurance 
• Life Insurance Terms

Types of Life Insurance Coverage

10, 15, 20, 30-Year Insurance Policy: A term life insurance policy that covers the policyholder for a duration of 10, 15, 20, or 30 years (or however many years the insured person chooses as the coverage term). If the policyholder dies during that period, the life insurance company will make a payment to the selected beneficiaries. If the policyholder does not die during that term, the contract expires with no payout.

Accidental Death Insurance: Generally an add-on to a regular life insurance policy, Accidental Death Insurance is a pretty accurate name. It is only paid if the insured's death occurs as a result of an accident.

Accidental Death and Dismemberment Insurance: Sometimes called AD&D, this is an insurance policy that pays out only if the insured dies, becomes blind, or is dismembered in an accident.

Burial Insurance: Also known as funeral or final expense insurance, this coverage is a type of whole life insurance designed to cover your funeral, burial, and other end-of-life expenses.

Group Life Insurance: The life insurance that is often offered by an employer (or a large organization) to its employees. Employers usually offer group life insurance as part of a larger employee benefit package.

Mortgage Life Insurance: A form of life insurance that makes remaining mortgage payments directly to the lender when the homeowner dies.

Non-Participating Life Insurance Policy: An insurance policy that stipulates that the insurance company will not distribute any parts of its profits to the policy owner. You pay your premiums and your beneficiary receives a lump sum when you die. This sum will not grow or shrink based on the insurance company’s investment portfolio returns.

Permanent Life Insurance: Also called perm, this is a life insurance policy that provides coverage throughout the covered person’s life.

Term Life Insurance: A life insurance policy for a specific period that stipulates the insurance company must deliver a tax-free payment if the insured person dies within that time frame. Many term policies only cover periods of 5, 10, or 20 years but can be renewed, usually for a higher cost, at the end of the policy.

Universal Life Insurance: A type of permanent life insurance policy that offers the low-cost protection of term life insurance as well as a savings element, which is invested to allow for cash value to build up over time. The death benefit, savings element, and premiums can be reviewed and altered by the policyholder as his or her life circumstances change.

Variable Life Insurance: A form of permanent life insurance that provides permanent coverage to the beneficiary upon the death of the insured person.

Variable Universal Life Insurance: Cash-value life insurance offering both payments upon the death of the insured and an investment feature. The premium amount for this type of life insurance is flexible and can be changed depending on the insured’s life circumstances and needs.

Whole Life Insurance: A type of life insurance that has both a permanent life insurance and an investment component. Upon the death of the insured person, the life insurance company makes a payment to the beneficiary. The investment component accumulates a cash value that the policyholder may withdraw or borrow against.

Will: A legal document detailing how the author’s assets should be distributed upon their death.

Life Insurance Terms

Administrative Expense: The life insurance company's operating costs. It covers salaries, medical examinations, building rent, underwriting, advertising, printing costs, agency expenses, and premium taxes. These expenses get lumped into what policyholders pay and are used to calculate dividends and premium rates.

Accelerated Death Benefits: The death benefits that are available before the death of the insured. Sometimes called living benefits, they are usually accessible in cases of chronic or terminal illness.

Accrued Interest: Interest that has been earned and recognized but not yet paid out (or the borrower has not received the payment).

Amount of Insurance: The coverage that is issued by a life insurance company. Also called the coverage amount, face amount, or sum insured.

Annuity: A contract that pays a fixed sum of money at regular intervals, usually for life.

Annuity Certain: A contract that pays an income for a set number of years, and will pay the annuitant’s beneficiary or estate if the annuitant dies before the end of the payment term.

Beneficiary: The individual who receives proceeds from a life insurance policy at the death of the insured. A beneficiary who is under 18 years old must be represented by a legal guardian or a public official. Anyone can be named as a beneficiary.

Billing Date: The day of the month that the life insurance premium bill is due. 

Bonus Rate Annuity: An annuity carrying an extra-high interest rate offered for only the first year, to attract new policyholders.

Cash Surrender Value: The cash amount you would get if you voluntarily terminate coverage before a policy becomes payable by death or maturity. The amount is the cash value stated in the policy, minus a surrender charge, any outstanding loans, and interest on those loans. The cash value represents the savings component of a life insurance policy.

Contingent Owner: The person who will become the owner of a life plan if the original owner dies before the policy ends.

Conversion Right: The right—granted by some term life insurance policies—to change the current policy of an individual to a permanent insurance policy within a certain timeframe, without giving proof of insurability.

Coverage Period: The period of time the life insurance covers the policyholder.

Coverage End Date: The day the insurance coverage ends.

Coverage Start Date: The day the insurance coverage goes into effect.

Death Benefit: The amount of money paid to the beneficiary when the policyholder dies. If loans are taken on these benefits, the payable amount will decrease. The amount of the benefit might also increase if there are more benefits payable when certain conditions are met.

Dividend: The return that some policyholders will receive as part of the distribution of a portion of an insurance company’s profits.

Evidence of Insurability: A statement of the prospective policyholder’s physical health and other information, such as assets and income, which helps the insurance company decide whether the applicant is eligible for insurance, the amount of risk they pose to the company, and what premium the company will charge.

Face Amount: The amount of insurance that an individual buys. This will be paid in the event of the policyholder’s death or when the policy reaches maturity. It does not include any extra benefits that might be payable under accidental death or other special provisions. Also called amount of insurance, coverage amount, or sum insured.

Financial Needs Analysis: The analysis that reviews the policyholder’s current financial goals to help determine how much insurance they might require.

Fixed Amount Option: An option for death benefits to be paid in a series of fixed-amount payments until the proceeds and interest earned run out.

Fixed Period Option: The option in a life insurance policy that makes death benefit payments for a set length of time. The death benefit is left on deposit with the insurance company and accrues interest. The life insurance company makes payments of the specified amount until the benefit and interest run out.

Free Look Provision: The amount of time a life insurance policyholder has to look over the insurance policy.

Grace Period: The period of time a policy remains valid even after a premium payment is due and goes unpaid.

Joint First-To-Die: A life insurance policy that provides coverage for two people and makes payment to the survivor as soon as the first person dies. This policy is often used to cover estate tax expenses.

Joint Last-To-Die: A life insurance policy that provides coverage for two people and makes payment only after both people have passed away. This type of policy is mostly used to cover estate tax expenses to protect the value of the policy for the children in a situation in which there might be significant taxes due at the time of the last parent’s demise.

Last Conversion Date: The last day a policy can be converted from term life insurance to whole life insurance to avoid losing money paid on premiums.

Life Expectancy: The age to which a person is likely to live, according to actuarial life tables.

Life Income Option: An arrangement in which the payout from a life insurance policy will go to the beneficiary as equal payments paid for the duration of the beneficiary’s life (payments will continue even if the principal is exhausted).

Lifetime Coverage: An insurance policy that has a coverage term equal to the lifetime of the insured person.

Living Benefits: An advance cash payment of a portion of the insurance before the insured person dies.

Living Will: A will that details the author’s desires regarding their medical treatment in case they are no longer able to express informed consent.

Medical Report: A report on the health of the life insurance applicant that is filled out by a physician and based on a physical examination of the prospective policyholder.

Non-Smoker Rates: A lower rate acknowledging that non-smokers are expected to live longer than smokers. Anyone who has not been a smoker for at least a year before applying for a life insurance policy can benefit from this discount.

Owner: The individual who purchased the life insurance policy. He or she is usually the same person as the insured but in certain cases, the owner could be a different individual who has been authorized to be the owner, such as a spouse, a child, a parent, a business partner with an insurable interest, or a corporation.

Paid-Up Insurance: A life insurance policy for which all premiums have been paid and the coverage is still effective.

Premium: The payment required by the life insurance company in order for the insured’s policy to remain in effect. Depending on the terms agreed upon, the premium might be paid at once or in a series of regular payments.

Risk Classification: The step in the life insurance underwriting process in which a company assesses and classifies an applicant’s risk of mortality.

Using the Life Insurance Terminology Glossary

Life insurance may feel simple and straightforward to you as an advisor, but the ins and outs can be confusing for your clients. Keep a list like this handy to help your clients feel confident assessing their life insurance options. 

Want to take it a step further? Keep detailed notes of your clients’ life insurance plan preferences in your agency’s agency management system (AMS). This way, you can easily access their information and help them make the best decisions.

AgencyBloc, the #1 Recommended Agency Management Platform, helps your life and health insurance agency organize, automate, and grow your business. With a suite of solutions for sales enablement, quoting, client and policy management, commissions processing, and more, your team can work smarter and spend more time focused on customer service, client retention, and other revenue-generating initiatives.

Posted on Tuesday, November 7, 2023 in Life Insurance

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