Definition of Life Insurance Terms

Accelerated death benefit: This is a rider or additional benefit attached to a life insurance policy that allows the insured to receive a cash advance against the death benefit after being diagnosed with a terminal illness.

Accidental death benefit: This is a rider or additional benefit connected to a life insurance policy that pays the beneficiaries in case the insured died because of an accident. The amount is paid in addition to standard benefits that the beneficiary receives in the case of death by natural causes.

Automatic increase rider: This is an additional benefit or clause attached to disability insurance policies that automatically increases the monthly disability benefits the insured receives. However, the cost of premiums will also go up each year because of the additional cover provided.

Children's term rider: This is a clause that is added to a parent or guardian's life insurance policy, paying the insured a benefit in case of the death of the child. It is usually available for children between the ages of 15 days and 18-25 years, depending on the insurance provider.

Beneficiary: A beneficiary is an entity or person who you name in your life insurance policy to receive benefits when you die. It could be one or more person, a charity, a trustee for your trust, or your estate. You have to name a primary and a contingent beneficiary.

Beneficiary contingent: This is the person or entity that receives benefits after your death if your primary beneficiary is nowhere to be found. If the contingent beneficiary cannot be found either, primary benefits go to your estate.

Coverage Amount/ Face Amount: Coverage or face amount in life insurance is the sum of the money paid out after the death of the insured. This amount is usually written on the top sheet, or face, of the insurance policy.

Conversion: This involves changing some or all of your term life insurance policy into a permanent life insurance policy, such as whole life or universal life policy. Life insurance policies that have a conversion option allow you to convert regardless of your health conditions, as long as you do it before the deadline stated on your policy.

Date of Issue: This refers to the date your insurance provider approves and accepts your application for life insurance.

Evidence of insurability: This is a statement of your medical history and condition of your health when applying for life insurance to determine if you can be considered for certain types of insurance coverage.

In Force: When an individual uses this term, it refers to the total amount of their life insurance policies that are currently active and paid up. For example, if you have a $300,000 term life insurance policy and a $200,000 whole life policy, and your premium payments are current, you have $500,000 of life insurance in force. When an insurance company uses this term, it refers to the total amount of life insurance the company has issued or is issuing. This is usually a demonstration of the company's obligations as well as its financial strength.

Lapse: This means the insurance policy is no longer an active contract because the insured has missed a couple of payments. If the insured dies while the contract has lapsed, the beneficiaries will not receive any benefits. The insured has a grace period after missed payments before the insurance lapses. Fortunately, the insured can reinstate their policy contract after a lapse, though different companies have different rules for reinstatement.

Length of coverage/ Term Length: This is the length of time you need your term life insurance policy to last.

Medical Information Bureau (MIB): This is a nonprofit membership organization owned by over 400 insurers in the United States and Canada containing a database of medical and nonmedical information that insurers need for fraud detection purposes.

Premium: This is the amount of money the insured pays for their insurance policy. The premium amount is determined by a certain set of variables, including sex, health, age, and assumed rate of return.

Premium Mode: This refers to the frequency of premium payments. It could be monthly, quarterly, semi-annually, or annually. 

Proposed Insured: This is the person named in the insurance policy as the one whose life is to be covered by the insurance.

Rate: The price charged for an insurance policy. The rate usually depends on certain factors, including term length and coverage amount.

Class Rated (Table Rated): This refers to categories assigned by life insurance companies based on risk. A policy holder is assigned a category of risk depending on their individual circumstances, including family history, medical history, and health status.

Rider: This is an add-on or additional clause in a standard life insurance policy that provides extra benefits to the policy holder or his beneficiaries at an additional cost.

Underwriting Guidelines: Rules used to evaluate an application for insurance. These rules help determine the risks associated with insuring the applicant, and help allocate a rating class or provide reasons for declining an application.