Life Insurance Glossary

Learning about life insurance can be a daunting task, especially if one doesn’t know the meaning of the specialized words, of which there are many. In this life insurance glossary, we have defined many of these terms used throughout this website and, perhaps in your policy). If, at any time you come across an insurance term in LifeInsure.com you don’t understand, come back to this glossary and look up the definition. By knowing the definitions of these terms, your study of the subject should be much easier.

Accelerated Death Benefit:
This benefit is sometimes part of the policy and sometimes added as a rider. Most insurance companies do not charge an additional premium when it’s added as a rider. It will pay the benefit (sometimes a lesser amount than the death benefit) under certain specified conditions, such as a terminal disease, chronic illness, or long-term care (check your policy for exact conditions and the maximum amount paid). Take note that if this benefit is exercised, it will reduce the actual death benefit by the amount of Accelerated Death Benefit paid.

Accidental Death Benefit: 
The Accidental Death Benefit rider provides for the insurance company to pay a multiple of the policy face amount (usually 2 times) to the designated beneficiary when the insured’s death is the result of an accident which was the direct cause of death.

Accidental Death and Dismemberment Benefit: 
This is a rider that provides for the insurer to pay a stated benefit in case of death or the loss of limbs or sight as a result of an accident. The terms and conditions of the rider will be stated in the insurance contract.

Actuary:
A professional person trained in mathematics, statistics, legal accounting methods, and principles of the operation of insurance, annuities, and retirement plans. An insurance company actuary determines, on the basis of existing experience, the monetary value of risk presented by age, sex, health, and lifestyle factors. As an example, an actuary can determine the extra cost of risk presented by a cigarette smoker and present the findings to the insurance company to help compute the extra premiums a smoker will pay.

Age:
For life insurance purposes, the age in years of an applicant or insured. Some companies use the age at the last birthday, while others use the age at the nearest birthday, prior to or succeeding.

Age last birthday:
One method of insurance rating that rates people according to their age as of their last birthday, with such rating held until the next birthday. If your policy is approved at your current age (prior to your next birthday), you will be rated at your current age (as opposed to age nearest birthday).

Age nearest birthday:
Some insurance companies use this method to compute an insured’s age as the nearest birthday. Therefore, if the insured has passed six months after the last birthday, he or she is considered to be one year older (as opposed to age last birthday).

Agent: 
Anyone who solicits insurance or aids in the placing of and delivering of insurance policies and/or the collection of premiums on behalf of an insurance company.

Annual Premium: 
The total premium amount due on an annual basis to meet the contractual requirements of an insurance policy and to keep it in force.

Annual Renewable Term (ART) Life Insurance:
This type of term life insurance renews annually. The premiums typically increase every year on the policy anniversary date.

Application:
A form supplied by the life insurance company is usually filled in by the agent and medical examiner (if applicable) based on information received from the applicant. The form is signed by the applicant and becomes part of the insurance contract if a policy is issued. The application is reviewed by an insurance company underwriter to consider whether the requested policy will be issued and, if so, in what classification and at what premium rate.

Appointment:
The authorization of an agent to represent an insurance company. An agent must be appointed by the insurance company in the state(s) the business is being written in order to submit a client’s application to the insurance company. In some cases, the insurance company will permit agent contracting paperwork to be submitted along with the first application in that state.

Approved:
This is a term referring to an application for life insurance being approved and accepted by the insurance company. The application can either be approved as applied, which means the health class and premium approved to match the original quote or approved other than applied, which means your health class and the premium will differ from your original quote. This is usually due to information attained by the medical examiner and/or underwriter, which places the applicant in a different health class than what was applied for.

Assets:
Anything of value that is owned. An insurance company will sometimes request that you list your total assets and liabilities on the application to help them evaluate, in conjunction with your income, your need for the death benefit applied for.

Backdating: 
Some insurance companies allow policies to be dated earlier than the actual date issued in order to save age. By underwriting at a younger age, the premiums will typically be lower than if the policy is dated at the actual date. However, take note that premiums will be due from the date on the policy, not the actual date.

Beneficiary: 
The person (or entity) to whom the proceeds of a life insurance policy are payable when the insured dies. There are various types of beneficiaries (see primary, contingent or secondary and tertiary beneficiaries)

Binding receipt:
The receipt for payment of the first premium assures the applicant that if he or she dies before receiving the policy, the company will pay the full claims if the policy is issued (or would have been issued) as applied for.

Broker:
In insurance, a broker is someone who places business with more than one company and who has no exclusive contract requiring that all his or her business first be offered to a single company. Unlike the agent, who is considered to represent the company, the broker usually represents the buyer.

Burial insurance:
A general term usually referring to a small policy of life insurance ($5,000 to $25,000) intended only to meet the insured’s final expense needs.

Business continuation insurance:
Generally refers to a life insurance policy used to fund a business continuation plan (also see buy-sell insurance).

Business Insurance:
Life insurance coverage that is concerned primarily with protecting an insured’s business or vocation. Business insurance protects a business against the loss of its valuable lives or key executives, stabilizes the business through the establishment of better credit relations, and provides a practical plan for the retirement of business interests in the event of the death of one of the owners.

Buy-Sell Agreement: 
An agreement between the owners of a business, which provides that the interest of any one of them who dies shall be sold to and will be purchased by the surviving co-owners or by the business at a value agreed upon by the parties and stipulated in the agreement. Also applies to buyout arrangements between owners and key employees.

Carrier: In insurance, another term for insurer is used because the insurance company assumes or carries the risk for its policy owners.

Cash surrender value:

See cash value.

Cash value:
In a life insurance policy, the cash surrender value is the amount available to the owner when the policy is surrendered to the company. During the early policy years, the cash surrender value is the reserve less a surrender charge. In the later policy years, the cash surrender value usually equals or closely approximates the reserve value.

Charitable trust:
A trust designed for the benefit of a class or the public generally. It is essentially different from a private trust in that the beneficiaries are not designated individually.

Child rider:
A rider is an attachment to a policy that adds something to the policy (as opposed to being established in the body of the policy). A child rider allows parents to purchase life insurance for their children (all in one rider) without having to purchase a separate policy for each child.

Collateral assignment:
In insurance, the assignment of a policy to a creditor as security for a debt. Under a collateral assignment, the creditor is entitled to be reimbursed out of policy proceeds for the amount owing to him or her; the beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured’s death.

Conditional receipt:
A receipt that is given to a life insurance applicant if all or part of the premium is paid at the time of application. This receipt does not provide absolute interim insurance (during underwriting) until the company acts on the application but stipulates that the company will assume the risk of the death of the insured after the date of the application if it later approves the application or, more frequently if the insured meets with the company’s rules of insurability for the plan applied for as of the date of the application.

Contestable clause:
The section of an insurance contract that states conditions under which the policy may be contested or voided is called the incontestability clause.

Contestable period:
The period of time during which an insurer may contest a claim on a policy because of misleading or incomplete information furnished with the application.

Contingent beneficiary:
In life insurance, an alternate beneficiary designated to receive payment, usually in the event that the original beneficiary has died before the insured. Also, sometimes referred to as a secondary beneficiary.

Convertible privilege:
In life insurance, some term policies provide that they may be converted to permanent forms of insurance without medical examination or underwriting if conversion is made within a limited period as specified in the policy.

Cross-purchase agreement:
An arrangement of buy-sell agreements made by business owners while all are living, which, in the event of an owner’s death, binds the surviving shareholders or partners to purchase, and the estate of the deceased to sell, the deceased’s interest in the business. A cross-purchase agreement is often funded with life insurance policies owned by each principal on the lives of all other principals.

Death Benefit:
In life insurance, the face amount, as stated in the policy, to be paid upon proof of death of the insured.

Decreasing term life insurance:
Term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level.

Delivery of policy:
The presentation of an insurance policy to the insured.

Delivery receipt:
In insurance, a receipt signed by the policy owner stating that he or she has received the policy.

Disability rider:
A rider in a life insurance policy that, in the event of an insured’s total disability, the insurer will waive payment of premiums falling due during the period of disability. Also known as waiver of premium.

Dividend:
In a participating whole life insurance policy, the dividend is the refund of the part of the premium paid at the beginning of the year that remains after the company has set aside the necessary reserve and made deductions for claims and expenses. The dividend may also include a share in the company’s investments, mortality, and operating profits.

Dividend Additions:
In a whole life insurance policy, paid-up additional insurance purchased with the dividends on existing policies. Participating policies provide that their dividends may be used as single premiums at the insured’s attained age to purchased paid-up insurance as additions to the amount of insurance specified on the face of the contract. Also known as Paid up additions.

Dividend options:
In a participating whole life insurance policy, the insured may elect to receive surplus earnings in cash, as a reduction of premium, as additional paid-up insurance, left on deposit at interest, or as additional term insurance.

Earned income:
Gross salary, wages, commissions, fees, etc., derived from active employment. This does not include unearned income, such as income from investments, rents, annuities, insurance policies, etc.

Effective date:
The date on which an insurance policy goes into effect and protection is furnished.

Endorsement:
A provision added to an insurance policy, either written on the printed policy page or added as a rider. No endorsement is valid unless signed by an executive officer of the insurance company and attached to and made a part of the policy.

Endow:
A permanent life insurance policy is said to endow when its cash value equals the face amount. At that point, the policy owner will receive, in cash, the face amount.

Endowment:
In life insurance, a contract which provides for the payment of the face amount at the end of a fixed period, or at a specified age of the insured, or at the death of the insured before the end of the stated period.

Endowment policy:
A life insurance policy in which the cash value and face value are equal to each other at the policy’s maturity date; a policy under which the face amount is payable on a specified future date (maturity date) if the insured is then living, or at the insured’s death if that should occur sooner.

Estate planning:
The total process of planning an estate, including (a) estate creation and conservation during the owner’s life; (b) the minimization of state shrinkage at death; (c) the creation of adequate liquidity for estate settlement costs; and (d) a plan for proper estate distribution to the owner’s heirs.

Estate tax:
A tax levied upon the right to transfer property at death, imposed upon and measured by the estate that the deceased leaves.

Evidence of insurability:
Any statement of proof of a person’s physical condition, occupation, etc., affecting the acceptance of the application for insurance.

Examination:
The medical examination of an applicant for life insurance typically consists of blood pressure readings, blood and urine specimens, height and weight measurements, and a medical questionnaire. In some cases (older age and larger death benefit), an EKG and other tests might be required.

Examiner:
Medical personnel authorized by the medical director of a company to make medical examinations.

Face amount:
In a life insurance policy, the amount payable in the event of death is stated on the front page of the policy. Since the amount of insurance protection provided under a given policy is usually stated on the face or first page of the contract, the term is commonly used when referring to the death benefit in the contract.

Final expense insurance:
A life insurance policy purchased to cover the costs incurred during a last illness, funeral and burial costs, debts, probate expenses, death taxes, and any other taxes or obligations that must be paid to settle a decedent’s estate is sometimes referred to as burial insurance.

Flat extra premium:
Premium is added on top of the regular premium of a life insurance policy to cover added risk, typically that of high-risk occupations or activities (e.g., flying an aircraft). The insurance company adds a flat extra fee per thousand dollars of death benefit. An example of this would be a pilot paying an extra $2 – $3 per thousand dollars of benefit. In this example, a pilot taking out a $1 million policy would pay an extra $2,000 – $3,000, over and above the normal premium.

Free look period:
A specified period of time in which the insured can keep the policy for review and, if then decides to return the policy, a full refund is given. The free-look period varies by company and state, so make sure to check the free-look terms when you receive your policy.

Grace period:
Most life insurance policies provide that premiums may be paid at any time within a period of generally 30 or 31 days following the premium due date, the policy remaining in full force in the meantime. If death occurs during the grace period, the premium is deducted from the proceeds payable. As a general rule, no interest is charged on over-due premiums if paid during the grace period.

Group life insurance:
A form of life insurance covering a group of persons generally having some common interest, such as employees of the same company or members of the same union or association, etc.

Guaranteed insurability option:
An option offered under some life insurance policies, whereby additional insurance may be purchased at various future times without a new medical examination or other evidence of insurability.

Health Analyzer:
In order to provide you with the most accurate life insurance quotes, we ask several questions which are based on underwriting guidelines established by the insurance companies we represent. By closely following these underwriting guidelines, quotes you receive from LifeInsure.com are usually more realistic than quotes that don’t account for this information. We will never give you a low-ball quote just to get you to apply for a policy.

Health Class:
Life insurance companies factor in health and lifestyle information to determine the risk of insuring you would present to them. In order to determine premiums based on different degrees of risk, the insurance companies have established health (or risk) classes. There are no industry standards, but the health classes are typically Preferred Plus, Preferred, Standard Plus, and Standard for non-tobacco users. Below these classes are sub-standard (or rated) categories. There are also separate classes for tobacco users.

Impaired risk:
In life insurance, a person who has an unfavorable health condition or is exposed to an above-average occupational hazard is considered a substandard risk—a risk that is substandard or below average.

Incontestable clause:
In life insurance, a contract clause which provides that for certain reasons, such as misstatements on the application, the company may not contest payment of benefits (assuming premiums have been paid) and the policy has been in force during the lifetime of the insured for a certain period, usually two years after issue.

Independent agent:
In life insurance, an agent who does not work for one insurance company but rather represents one or more companies on an independent contractor basis.

Initial premium:
In life insurance, the first mode premium is generally payable with the application or upon delivery of the policy.

In-Force:
In life insurance, a term denoting that a policy has been issued, premiums are current and coverage is in place.

Inspection report:
In life insurance, the report of an investigator containing facts required in order for the insurer to make a proper decision on an application for new insurance or reinstatement.

Insurability:
In life insurance, all conditions pertaining to an individual that affect his or her health, susceptibility to injury, and expectancy of life are considered in determining the amount of risk. If the risk is too high, the insurer will refuse coverage.

Insurable interest:
The interest arising when one person has a reasonable expectation of benefiting from the continuance of another person’s life or of suffering a loss at his or her death. In life insurance, a person generally is considered to have an unlimited insurable interest in himself or herself. However, a person must have an insurable interest in another person at the time of application in order to insure the other’s life.

Insurance:
Protection, through specified monetary compensation or reimbursement for loss, provided by a written contract against the happening of specified chance or unexpected events. The contractual relationship exists when one party, for a consideration, agrees to reimburse another for loss caused by designated contingencies (e.g., death). The first party is called the insurer; the second, the insured; the contract, the insurance policy; the consideration, the premium; the property in question, the hazard or peril. The term assurance, common in England, is ordinarily considered identical to and synonymous with insurance.

Insurance contract:
The legally binding unilateral agreement between an insurance company and a policy owner.

Insurance coverage:
The total dollar amount of insurance carried by an individual.

Insurance policy:
The printed form prepared by insurers to serve as the contract between the insurers and insureds. See Insurance contract.

Insured:
The individual or group covered by the contract of insurance.

Insurer:
The company granting the insurance.

Intestate:
One who dies without a will. Also, the condition of dying without a will.

Irrevocable beneficiary:
A beneficiary that cannot be removed from an insurance policy without his or her formal (written) consent.

Irrevocable Life Insurance Trust (ILIT):
An irrevocable trust is a trust that cannot be terminated by the donor (grantor). The ILIT is used to own an insurance policy, keeping the life insurance proceeds free of federal estate tax upon the insured’s death. Once the trust is established, it is irrevocable, which means it can never be changed, except by the courts and then only under very special circumstances.

The ILIT is both the policy owner and beneficiary. The proceeds received by an ILIT can be used to pay the insured’s death expenses, including taxes.

Issue age:
The age of an insurance application or an insured as used for insurance purposes. In some companies, the issue of age is the age of the last birthday. In others, it is the age at the nearest birthday..

Issue date:
The date upon which the life insurance application is approved and the policy is issued by the insurer. This is not necessarily the same as the date of the policy or the date the insurance becomes effective. However, life insurance policies frequently provide suicide and incontestability clauses, measured from the issue date.

Joint survivor life insurance:
A life insurance contract that covers two lives and provides for the payment of the proceeds upon the death of the second insured. Also known as survivorship life insurance or second-to-die life insurance, this type of policy is typically used to pay estate taxes upon the death of the second insured. It is also often used by parents of special needs children to ensure the child will be provided for after the death of both parents.

Key person (key man or key employee) life insurance:
Protection of a business against the financial loss caused by the death of a vital member of the firm. A means of protecting a business from the adverse effects of the loss of individuals possessing special managerial or technical skills or experience.

Lapse:

Termination of a policy due to nonpayment of premiums.

Lapsed policy:
A policy terminated because of nonpayment of premiums.

Level premium term life insurance policy:
A term life insurance policy in which the premium remains unchanged throughout the life of the policy (the term).

Liabilities:
Debts and obligations.

License:
With respect to insurance, certification issued by the appropriate state department(s) of insurance that an individual is qualified to solicit insurance applications for the period of time covered. Usually issued for a period of one or two years, renewable upon application, without the necessity of the applicant’s undergoing the original qualifying requirements. However, proof of completion of continuing education courses is typically required by most states at renewal time.

Life expectancy:
The average duration of the life remaining to a number of persons of a given age, according to a given mortality table.

Life insurance:
Insurance in which the risk insured against is the death of a particular person (known as the insured), upon whose death within a stated term (for term insurance), or whenever death occurs (for permanent insurance), the insurance company agrees to pay a stated sum or income to the beneficiary.

Life insurance trust:
A trust for the purpose of distributing life insurance proceeds. Life insurance companies usually cannot act as trustees or guardians nor exercise discretion in making payments to beneficiaries. In some cases, it is advisable to have the policy proceeds paid into a trust and distributed under the terms of a trust agreement, thereby permitting greater flexibility in the distribution of the proceeds.

Living trust:
A trust created to take effect during the lifetime of the grantor.

Lump sum:
A lump sum settlement is the payment of the entire proceeds of a life insurance policy in one sum. Most policies provide this method of settlement unless an alternate settlement is elected by the policy owner before the insured’s death or thereafter by the beneficiary before receiving the payment.

Medical examination:
The physical examination of a proposed insured, usually conducted by a licensed physician or another medical examiner, the results of which become part of the application, thus part of the policy contract and attached thereto. In most cases, the medical exam consists of blood pressure readings, blood and urine samples, height and weight measurements, and a medical questionnaire. Occasionally, an EKG and other tests may be required based on either the amount of death benefit or the age of the applicant or both.

Medical Information Bureau (MIB):
A data pool service that stores coded information on the health histories of people who have applied for life or health insurance with subscribing companies in the past. Most life insurance companies have subscriptions with the MIB.

Modal Premium:
The frequency with which premiums are paid (monthly, annually, quarterly, semi-annually)

Mortality:
The relative incidence of death.

Mortality Factor:
One of the basic factors needed to calculate basic premium rates. It utilizes mortality tables in attempting to determine the average number of deaths that will occur each year.

Mortality Table:
A listing of the mortality experience of individuals by age. A mortality table permits the actuary to calculate, on average, how long a male or female of a given age may be expected to live.

Mortgage insurance:
One of the basic uses for life insurance is so called because many family breadwinners leave insurance for the specific purpose of paying off any mortgage balance outstanding at the time of their death. Reducing term life insurance was at one time predominantly used for mortgage insurance, but as level term life insurance premiums decreased over the years, it has become the policy of choice for mortgage insurance.

Mutual life insurance company:
A life insurance company that has no capital stock or stockholders. It is owned by its policy owners and is managed by a board of directors chosen by the policy owners. Any earnings in addition to those necessary for the operation of the company are returned to the policyowners in the form of policy dividends.

Net worth:
Value of a business (or individual) calculated by subtracting its total liabilities from its total assets.

No-lapse guarantee rider:
A rider sometimes offered with a universal life insurance policy that guarantees that the policy will never lapse, and the death benefit and premiums will never rise, even if the cash value of the policy falls to zero, provided that premiums are paid when due. Also known as lapse protection.

Non-medical insurance:
Life insurance issued without requiring the applicant to submit to a regular medical examination. In passing on the risk, the insurance company relies on the applicant’s own answers to questions regarding his or her physical condition, and on personal references and inspection reports. Because of the limited underwriting, this type of policy usually has much higher premiums than fully underwritten policies.

Non-participating Policy:
A life insurance policy that does not pay policy dividends and under which the insured is not entitled to share in any divisible surplus of the company. Any profits from the excess of the premium over the cost of insurance revert to the stockholder.

Notice of cancellation:
A written notice from the insurance company to the insured, notifying the policy owner of the cancellation of the policy.

Not Taken:
A policy that has been issued, but not accepted and paid for by the prospective policy owner and, therefore, is returned to the company without ever having been in force.

Occupational hazard:
A danger inherent in the insured’s line of work. This often results in higher premiums.

Paid-up Policy:
Insurance on which the policy owner has completed payments but which has not matured. This may be either (1) reduced paid-up insurance provided under the nonforfeiture provision; (2) a limited payment policy under which all premiums have been paid; or (3) a policy on which accumulated dividends are applied to pay the net single premium required to pay up the difference between the policy’s reduced paid-up insurance and its face amount.

Paramedical (Paramed) exam:
See Medical examination.

Participating policy:
A life insurance policy under which the insured receives shares of the company’s divisible surplus, such shares are commonly called dividends. The divisible surplus represents the difference between the premiums charged and the actual costs (reflecting claims, expenses, earnings, etc.) experienced during the period for which the premiums were charged.

Permanent life insurance:
A term loosely applied to cash value life insurance. This type of policy is meant to last a whole life, as opposed to term, which is in force for a specified period of time or term.

Policy:
The written statement of the agreement between the insurer and insured (or policy owner, if other than the insured), including all endorsements and attached papers, constitutes the entire contract of insurance. See contract and insurance policy.

Policy anniversary:
The anniversary of the date of issue of a policy, as shown in the policy schedule.

Policy fee:
A small charge made by some companies in addition to the premium.

Policy loan:
A loan made by the insurer to the (cash value) policy owner, with the cash value of the policy assigned as security for the loan.

Policy owner:
The person who has ownership rights in an insurance policy and who may or may not be the insured.

Preauthorized Check Plan:
This is a simplified method of paying premiums monthly. Policyowners authorize the insurance company to automatically draw one payment per month from their bank checking account in the amount of their premium.

Preferred risk:
A person whose physical condition, occupation, mode of living, and other characteristics indicate a prospect for longevity that is superior to that of the average longevity of unimpaired lives of the same age.

Preferred Best risk:
A person whose physical condition, occupation, mode of living, and other characteristics indicate a prospect for longevity that is superior to that of the preferred risk of the same age is sometimes called preferred plus.

Premium:
The periodic payment required to keep a specific life insurance policy in force.

Premium Mode:
The specific period chosen to pay life insurance premiums (monthly, annually, quarterly, semi-annually).

Primary Beneficiary:
The beneficiary specifically designated by the insured as the first in priority to receive policy proceeds.

Rated:
A term used to describe insurance issued to a person who is a substandard risk at a premium rate that is higher than that charged for a standard risk.

Reinstatement:
The terms of most life insurance policies allow policy owners to reinstate lapsed policies within a reasonable time after a lapse, provided they present satisfactory evidence of insurability. This right is usually denied if a policy has been surrendered for its cash value.

Renewable Term:
Term life insurance under which the insured has the right, at the end of the term, to elect to continue the insurance for another term (at the premium for his or her then-attained age) without submitting evidence of insurability.

Replacement:
The act of substituting a new policy for another policy already in force. The replacement must be stated on the life insurance application.

Return of Premium (ROP) term life insurance:
A term life insurance policy in which all the premiums paid to the insurance company are returned to the policy owner at the end of the term if he or she has outlived the term.

Revocable Beneficiary:
A beneficiary whose rights in a policy are subject to the insured’s reserved right to revoke or change the beneficiary designation and the right to surrender or make a loan on the policy without the consent of the beneficiary.

Rider:
An attachment that adds something to a policy. It is loosely used to refer to any supplemental agreement attached to and made a part of a policy, whether the conditions or coverage of the policy are expanded or some coverage or conditions are waived.

Saving Age:
The act of backdating a policy to a date closer to the applicant’s last birthday in order to lower the premium. In backdating, premiums are payable as of the policy date.

Second-to-die life insurance:
A life insurance contract which covers two lives and provides for the payment of the proceeds upon the death of the second insured. Also known as survivorship life insurance or joint survivor life insurance, this type of policy is typically used to pay estate taxes upon the death of the second insured. It is also often used by parents of special needs children to ensure the child will be provided for after the death of both parents.

Section 1035 exchange:
Under IRS Section 1035, a policyholder can exchange one life insurance policy with another and transfer the accumulated cash value from the old policy to the new one without incurring any taxes on the cash accumulation. The transfer must occur between two like policies and must be transferred directly from the old insurance company to the new one.

Single premium:
The lump-sum premium payment required to cover the entire cost of a life insurance policy.

Split-dollar insurance:
An arrangement between two people (often an employer and an employee) where life insurance is written on the life of one who also names the beneficiary of the net death benefits (death benefits less cash value), and the other is assigned the cash value (or equivalent amount of death benefits), with both sharing the premium payments (usually the non-insured paying a portion equal to the increase in cash value each year and the insured paying the balance of the annual premium).

Upon termination of the plan, while the insured is living, the cash value generally would go to the noninsured to compensate for the portion of premiums paid. Upon the death of the insured, the amount of the proceeds equal to the cash value generally would go to the noninsured, and the balance of proceeds would go to the insured’s beneficiary.

This method permits a financially able person (say, a favored employee) to obtain substantial amounts of needed life insurance with a very low premium outlay on his or her part.

Standard Risk:
A person who, according to the insurer’s underwriting standard, is entitled to insurance protection without extra rating or special restrictions.

Stock insurance company:
An insurance company is owned and controlled by a group of stockholders whose investment provides the safety margin necessary in the issuance of guaranteed, fixed premium, non-participating policies. The stockholders share in the company’s profits and losses.

Stock purchase agreement:
See Buy-Sell agreement.

Stock redemption agreement:
A buy-sell agreement is where the business assumes the obligations of purchasing (retiring or redeeming) a deceased owner’s interest in the business.

Substandard risk:
A person who is considered an under-average or impaired insurance risk because of his or her physical condition, family, or personal history of a disease. occupation, residence in unhealthy climate, or dangerous habits

Suicide clause:
Most policies provide that if the insured commits suicide within a specified period, usually two years after the date of issue, the company’s liability will be limited to a return of premiums paid.

Super Preferred risk:
A person whose physical condition, occupation, mode of living, and other characteristics indicate a prospect for longevity that is superior to that of the preferred risk of the same age. Sometimes called preferred best.

Surrender:
The return for cancellation of a policy to the insurer by the policy owner in exchange for the policy’s full cash value or other equivalent nonforfeiture values.

Survivorship life insurance:
A life insurance contract that covers two lives and provides for the payment of the proceeds upon the death of the second insured. Also known as joint survivor life insurance or second-to-die life insurance, this type of policy is typically used to pay estate taxes upon the death of the second insured. It is also often used by parents of special needs children to ensure the child will be provided for after the death of both parents.

Term life insurance:
Life insurance issued for a term of years, normally building up no cash value and expiring without value. Typical term periods are 10, 15, 20, 25, and 30 (a few companies now offer 35 and 40) years.

Tertiary beneficiary:
A beneficiary designated as third in line to receive proceeds or benefits if the primary and secondary beneficiaries do not survive to receive them.

Trust:
An arrangement in which property is held by a person or corporation (trustee) for the benefit of others (beneficiaries). The grantor (the person who transfers the property to the trustee) gives legal title to the trustee, subject to the terms set forth in a trust agreement. Beneficiaries have equitable title to the trust property.

Trustee:
One who holds the legal title to the property for the benefit of another. This may be either an individual or a company such as a bank or trust company.

Underwriter:
In life insurance, the term is used to designate the official or person in the home office who, after collating all the facts about the risk, accepts the risk and assigns the rate or declines the risk—the home office underwriter.

Underwriting:
Risk selection and classification according to degrees of insurability so that the appropriate rates may be assigned, including risk rejection.

Universal life insurance:
Universal life insurance is a type of permanent life insurance. With universal life insurance, the insurance company assumes an interest rate and the cost of insurance and projects a premium. If the insurance company’s projections do not come through, you may have to pay higher premiums later, have lower-than-expected cash values, or even lose the policy. However, with the addition of a no-lapse guarantee rider, this can be avoided.

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Variable universal life insurance:
A permanent life insurance policy with sub-accounts for various investments similar to mutual funds. A policy owner can select which account to “invest” in the policy’s cash value.

Waiver of premium:
A rider available with most life insurance policies which exempts the insured from the payment of premiums after he or she has been disabled for a specified period of time.

Whole life insurance:
A plan of insurance offering protection for the whole of life. Proceeds are to be payable at death. Premiums may be paid under a continuous premium arrangement or on a limited payment basis for virtually any desired period of years.

Yearly Renewable term insurance:
Renewable term insurance under which the successive terms are for one year.

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