Accelerated Death Benefit

A portion of the death benefit that becomes payable to the insured prior to death for a specified medical condition for the purpose of providing funds necessary to pay medical costs for a terminal condition.

Accidental Death/Dismemberment

Insurance that indemnifies or pays a stated benefit to an insured or the insuredís beneficiary in the event of injury or death due to accidental means.

Accumulation Period

Timeframe during which an annuitant makes premium payments to an insurance company.

Adjustable Life Insurance

Also known as Universal Life Insurance.  Coverage under which the face value (death benefit) and premiums can be changed at any time by the policy owner.

Advance Premium

Premium paid before the due date.

Age Change

Date, for insurance purposes, on which a person becomes one year older.  Depending on the insurance company, age can be calculated on the ďage nearestĒ method or the ďage last birthdayĒ method.

Aggregate Limit

Maximum dollar value of coverage under a health insurance policy.

Annual Renewable Life Insurance

Life Insurance policy that remains in force for 12 months.  After 12 months, the policy can either be renewed or not renewed by either the insured or the insurance company.

Annual Statement

Report that an insurance company must file annually with the State Insurance Commissioner in each state in which the company conducts business.  The report shows the current status of reserves, expenses, assets, liabilities, etc.


Person who receives an income benefit from an annuity.


Contract sold by an insurance company that pays an income benefit to the insured or the insuredís beneficiaries.

Annuity Certain

Annuity guaranteeing a given number of income payments whether or not the annuitant is alive to receive them.

Annuity Deferred

Annuity that can be paid either with a single payment or a series of payments.  Income benefit is paid at a specified later date.


Transfer of rights under an insurance policy to another person or business.  Life insurance policies are frequently assigned to secure loans.

Automatic Premium Loan Provision

Clause in a life insurance policy that allows the company to borrow premium owed (at the end the grace period) from the accrued cash value of a policy in order to keep the policy in force.  This clause is designed to prevent the unintentional lapse of a policy.


The individual or individuals who receive the death benefit from insurance at the time of the insuredís death.


Insurance salesperson who searches the marketplace in the interest of clients, not insurance companies.

Burial Insurance

Small face amount life insurance policy.  Also known as Funeral Insurance.

Buy and Sell Agreement

Approach used for sole proprietorships, partnerships, and corporations in which the business interests of a deceased or disabled member are sold to the remaining members according to a predetermined formula.

Bypass Trust

Trust used to remove the assets from a surviving spouseís estate, thereby excluding the assets from federal estate tax upon the death of the surviving spouse.

Captive Agent

Representative of a single insurer who is obligated to submit business only to that company.

Cash Surrender Value

Money the policy owner receives from the insurance company when a life insurance policy with cash value is surrendered.

Charitable Remainder Trust

Trust to which a donor transfers assets and which distributes income to finance a predetermined situation.  After the trust expires, any remaining assets are donated to the qualified previously designated charity.

Charitable Split Dollar Insurance Plan

Provides for the reduction of estate taxes and the payment of tax-deductible life insurance premiums.  Donor presents a tax-deductible gift of money to a charity.  The charity then transfers the gift in the form of a premium payment on the life of the insured.  The beneficiaries of the policy are the donorís heirs and the charity.  The donorís heirs also receive the cash value accrued on a tax-deferred basis.

Clauses Added to a Life Insurance Policy

Provisions that require additional premium payments that are added to life insurance policies.  These clauses include waiver of premium, disability Income, accidental death, and policy purchase options.

Collateral Assignment

Designation of a policyís death benefit or cash surrender value to a creditor as security for a loan.

Contestable Period

The period of time (usually within the first two years of a policy) that a life insurance company retains the right to investigate a claim.  If the company determines that an applicant misrepresented information on his or her application, the company simply refunds the premium(s) plus interest.  Once this initial period of time has elapsed, the company must pay the full death benefit at the time of the insuredís death.

Contingent Beneficiary

A secondary beneficiary that receives the death benefit only in the event that the beneficiary is deceased.

Convertible Term Life Insurance

Coverage that can be converted to a permanent life insurance plan regardless of an insuredís physical condition and without a medical examination.

Credit Life Insurance

Life Insurance issued to a creditor to cover the life of a debtor for an outstanding loan.  The face value decreases in proportion to the reduction in the loan amount.

Critical Illness Insurance

Insurance policy that pays a lump sum if the insured is diagnosed with a specific critical illness.  Generally, these include stroke, heart attack, cancer, deafness, organ transplant, blindness and kidney failure.

Crummey Trust

Unfunded trust that acts as the owner of a life insurance policy.  The donor is permitted to contribute up to $10,000 in premium payments and enjoy the gift tax exclusion.  When the donor dies, the life insurance policy is effectively removed from the donorís estate.

Custodial Account

Account established to manage the assets of a minor.

Death Benefit

Amount payable upon the death of an insured.  This is equal to the face amount of the policy minus any outstanding loans against the cash value.

Decreasing Term Life Insurance

Coverage in which the face amount of the policy declines by a stipulated amount over a period of time.

Deferred Annuity

Annuity that can be paid either with a single payment or a series of payments for which the annuitant receives a monthly income at a specified later date.

Disability Income Insurance

A type of insurance that pays a fixed amount of money per month, for a predetermined amount of time, in the event that the insured becomes disabled and is unable to earn an income.  This plan is ideally suited for self-employed individuals.


Sum returned to a policy owner by an insurance company under a participating policy.

Double Indemnity

This is a feature of life insurance that pays double the death benefit if the death is accidental.  Adding this option to a life insurance policy will increase the premium.

Extra Percentage Tables

Form of substandard ratings that shows additions to standard premiums to reflect physical impairments of applicants for life insurance.

Family Limited Partnership

Partnership in which family members hold all interest in the partnership.  The partnership is treated as a cash flow through stand-alone entity.  All sums of income and deductions flow through to the partners on a pro rata basis.  Partners report their shares on their individual income tax returns.

Fixed Dollar Annuity

Annuity that guarantees a specific sum of money will be paid to an annuitant.

Flexible Premium Life Insurance

Policy that has an initial premium with flexible premiums thereafter.

Grace Period

Period after the date the premium is due in which the premium can be paid with no interest charged.  If the insured dies within the grace period, the full death benefit is payable minus any premium due.

Graded Death Benefit

Death payment that increases over time.

Guaranteed Insurability

Right of an insured to make additional purchases of life insurance without showing evidence of insurability.

Guaranteed Issue

Right to purchase insurance without present and past physical conditions being considered.

Guaranteed Purchase Option

See Guaranteed Insurability.

Immediate Annuity

Annuity that begins payments after a single premium is paid.

Incontestable Clause

Section in a life insurance policy stating that, once a policy is in force for two years, the company cannot void it because of misrepresentation or concealment by the insured in obtaining the policy.

Independent Agent

Contractor who represents multiple insurance companies and who searches the market for the best place for a clientís business.

Irrevocable Life Insurance Trust

Estate planning device used so that any life insurance policies that are owned by and paid to the trust will avoid estate tax upon the death of the insured.

Joint Life and Survivorship Insurance

Coverage for two people that pays a death benefit upon the death of the second insured.

Level Term Insurance

Coverage in which the death benefit remains uniform as long as the policy is in force.  Typically, premiums are guaranteed level for a specified period of time.

Long Term Care Insurance

A type of insurance that pays a set daily amount to assist in paying for either nursing facility care or home care nursing charges.  Many long term care plans also offer inflation riders, which increase the amount paid per day to offset rising costs.

Medical Information Bureau (MIB)

Central computer facility that maintains on file, for member companies, the health history of applicants for life and health insurance.  The purpose of the MIB is to guard against fraud by applicants.

Mortgage Insurance

Life Insurance that pays the balance of a mortgage if the insured dies.

No Lapse Guarantee

Agreement by a life insurance company to keep a universal life policy in force even if the cash value becomes zero as along as a minimum continuation premium is made.

Non-medical Limit

Dollar ceiling on a life insurance policy for applicants who are not given a medical examination.

Non Participating Insurance

Insurance that does not pay a dividend to a policy holder.

Paid Up Additions

Option under a participating life insurance policy which allows the insured to use dividends to buy additional increments of paid-up life insurance.

Participating Insurance

Policy that pays a dividend to its owner.

Policy Conversion

The change (conversion) of a term life insurance policy to a universal life or a whole life insurance policy.  This is done at the insuredís request, automatically, without examination, regardless of the insuredís health at the time of the conversion.

Rabbi Trust

Trust in which an employer makes contributions to a trust that is irrevocable.  An independent trustee has control of the trust and must pay benefits if a stipulated event occurs, such as death, disability, or retirement of an employee.  The employer can not take income tax deductions for its contributions to the trust until funds are distributed to the employee.

Rated Policy

Policy in which the applicant is charged a higher premium due to a health impairment, occupation, or dangerous hobby.

Re-Entry Term Life Insurance

Clause in life insurance policies that allows the insured to re-apply at the renewal period to obtain a lower rate than the guaranteed renewal rate.  If the insured is in good health, the renewal rate can be reduced.  If not, the guaranteed renewal rate must be paid for the policy to remain in force.


Restoration of a policy that has lapsed due to non-payment of premiums.  Insured must show evidence of insurability and pay all past premiums due.


Form of insurance that insurance companies buy for their own protection.  An insurer may assign a portion of its liability on a policy to another company to reduce its potential liability.

Residual Disability

Inability to perform one or more important daily business duties.


Life Insurance policy that pays a death benefit when the second of two insureds dies.

Split Dollar Life Insurance

Policy in which premiums and death proceeds are split between an employer and employee, or between a parent and child.

Stock Insurance Company

Insurance sold by a stock insurance company that is in the form of non-participating insurance.

Substandard Life Insurance

Coverage for risks deemed uninsurable at standard rates due to medical history, occupation, or dangerous hobbies.

Surrender, Life Insurance

Action by the owner of a life insurance policy to relinquish the policy for the cash surrender value of the policy.

Term Life Insurance

The simplest form of life insurance.  This type of policy offers a predetermined amount of protection for a specified period of time at a guaranteed premium.  Typically, the guarantee period is as long as the term of the policy.  As an added benefit, term plans may be converted to more permanent types of insurance such as universal and whole life.

Universal Life Insurance

A type of life insurance that has both projected and guaranteed values.  The guaranteed values are based on the highest mortality cost and the lowest interest rates that an insurance company will pay.  This amount currently ranges between 4%-5%, depending on the company.  Projected values are typically calculated using current mortality costs and current interest rates, which now range between 5.5%-7%.  Universal life policies are typically set up in a fashion that projects the policies to protect the insured to age 100.  The premiums and cash values that these policies build are all projected and may change with changes in interest rates.  It should be noted, however, that the changes are not all negative.  For example, if interest rates increase from the time the policy is purchased, there is a strong possibility that the policy will build more cash value than originally projected.

Waiver of Premium

An option that may be added to a life insurance policy that will pay life insurance premiums in the event the insured becomes completely disabled.

Whole Life Insurance

A type of life insurance that is guaranteed to protect the insured for the rest of his or her life.  The premium, cash value, and death benefit are all guaranteed under these types of contracts.  Because of this guarantee, whole life insurance polices are the most expensive type of life insurance available.