Glossary
Life insurance terms, in plain English
48 words you'll meet in an application or a policy, defined the way a person would explain them across a table. Each links to the guide where it matters. Reviewed by Johnathan Shelton, CA License #4246363.
A
- Accelerated underwriting
- A carrier's process for deciding an application from your answers and database checks, without an exam. It's why many online applicants get a decision in minutes; those it can't classify go to a human underwriter. Read the guide →
- Accidental death insurance
- A policy or rider that pays only if death results from an accident. Much cheaper than life insurance because it excludes illness, which is how most people die. Not a substitute for term coverage. Read the guide →
- Agent of record
- The licensed agent attached to a policy, who can see its status and assist the policyholder. On this site, that's Johnathan Shelton, CA License #4246363.
B
- Beneficiary
- The person, people, trust, or organization you name to receive the death benefit. A primary beneficiary receives it first; a contingent beneficiary receives it if the primary has died. The designation overrides your will. Read the guide →
C
- Cash value
- Savings that build inside a permanent policy such as whole life, which you can borrow against or take by surrendering the policy. Term policies have no cash value, which is part of why they cost less. Read the guide →
- Community property
- California's rule that assets and earnings acquired during marriage belong to both spouses. It can give a spouse an interest in a life insurance policy paid for with marital earnings, which matters when naming someone else as beneficiary. Read the guide →
- Contestability period
- The first two years a policy is in force, during which the insurer can investigate a claim and contest it if the application contained a material misstatement. After two years, the policy is generally incontestable except for nonpayment. Read the guide →
- Conversion option
- A feature in many term policies letting you convert to permanent coverage without new health questions, within a set window. Valuable if your health or needs change. Read the guide →
- Coverage amount
- Another name for the death benefit or face amount: the sum the policy pays. Sized from need, not from price, using income years, debts, and education minus what you already have. Read the guide →
D
- Death benefit
- The amount paid to beneficiaries when the insured dies while the policy is in force. Generally free of federal and California income tax. Read the guide →
- Decline
- A carrier's refusal to issue a policy at any price. It applies to one carrier's rules; another carrier may reach a different decision on the same history. Read the guide →
E
- E&O insurance
- Errors and omissions coverage that licensed agents carry to protect clients against mistakes in their advice. Ethos requires its agents to carry at least $1 million.
- Evidence of insurability
- Proof of health the carrier requires before issuing or increasing coverage: the health questions, records, and sometimes an exam. Group coverage through work often waives it up to a limit, which is one of its advantages. Read the guide →
F
- Face amount
- The death benefit stated on the front page of the policy. Same thing as coverage amount.
- Fictitious business name
- A trade name used instead of the licensee's legal name. California insurance agents must have any such name approved by the Department of Insurance before advertising under it.
- Free-look period
- The window after policy delivery during which you can return it for a full refund of premiums, for any reason. In California, 10 to 30 days for most buyers and at least 30 days if you're 60 or older. Read the guide →
G
- Grace period
- The time after a missed premium during which coverage continues. California requires at least 60 days on individual life policies, with notice before any lapse. Read the guide →
- Graded death benefit
- A limitation in some guaranteed-issue policies: if death from natural causes occurs in the first two or three years, the policy pays back premiums plus interest rather than the full benefit. Read the guide →
- Group life insurance
- Coverage provided through an employer or association, typically one to two times salary, usually ending when you leave the group. A floor, not a plan. Read the guide →
- Guarantee association
- The state fund that steps in if an insurer becomes insolvent. In California, it covers 80% of a life insurance death benefit up to $300,000 per person. Read the guide →
- Guaranteed issue
- A policy issued without health questions. Higher price per dollar, lower limits, and usually a graded benefit. A last resort for those who can't qualify elsewhere. Read the guide →
I
- In force
- A policy that is active: issued, paid, and payable. Coverage is in force from the moment the policy is issued and the first premium is paid. Read the guide →
- Incontestability
- The point, after the contestability period, at which the insurer can no longer void the policy for misstatements in the application. Read the guide →
- Independent agent
- An agent who is not an employee of any carrier and can place business with more than one company. This site's agent is independent and says so on every page.
- Instant decision
- An approval (or other outcome) delivered at the end of the online application because automated underwriting had enough information. A real decision, not a preliminary one. Read the guide →
- Insurable interest
- The requirement that the policy owner would suffer a financial loss from the insured's death. Spouses, parents and children, and business partners have it; strangers don't.
L
- Laddering
- Holding two or more term policies of different lengths so total coverage steps down as needs shrink. Often cheaper than one large long policy. Read the guide →
- Lapse
- Termination of a policy for nonpayment after the grace period. Some policies can be reinstated within a set time with proof of health and back premiums.
- Level term
- Term insurance with a premium and death benefit that stay the same for the whole term. The standard form of term life today. Read the guide →
M
- MIB
- MIB Group, an information exchange most life insurers use to share coded data from past applications. You can request your MIB file free once a year and dispute errors. Read the guide →
N
- Non-resident license
- A license an agent holds in a state other than their home state, obtained without a new exam. Required to act as agent for a resident of that state.
O
- Owner
- The person who controls the policy: pays premiums, names beneficiaries, and can cancel it. Usually the insured, but can be a spouse, trust, or business.
P
- Permanent life insurance
- Coverage designed to last for life as long as premiums are paid, including whole life and universal life. Costs more than term and builds cash value. Read the guide →
- Postponement
- A carrier's decision to wait, often six to twelve months after a diagnosis, surgery, or event, before considering an application. Different from a decline. Read the guide →
- Preferred Plus, Preferred, Standard
- Rate classes. Carriers sort applicants into a handful of health classes, each with its own price. The gap between the best and Standard can be a third or more of the premium. Read the guide →
- What you pay for the policy, monthly or annually. Level for the whole term on a level term policy. Read the guide →
R
- Rated policy (table rating)
- A policy issued at a price above Standard because of health or lifestyle risk, expressed as a table or percentage. Often the same history is rated differently by different carriers. Read the guide →
- Reinstatement
- Restoring a lapsed policy, usually within a set window, by paying back premiums and providing evidence of insurability.
- Renewable term
- A term policy that can be continued after the term ends without new health questions, but at a much higher annual premium that rises each year. Read the guide →
- Replacement
- Buying a new policy to take the place of an existing one. California requires disclosure and gives a 30-day unconditional refund right on replacement policies; it also restarts the contestability clock. Read the guide →
- Rider
- An add-on to a policy, such as a waiver of premium if disabled, a child rider, or an accelerated death benefit for terminal illness. Some are included free; others cost extra.
S
- Simplified issue
- A policy with a few health questions and no records or exam. Faster and more lenient than fully underwritten coverage, at a higher price and lower limits. Read the guide →
- Suicide clause
- A provision in nearly all life policies that excludes death by suicide in the first two years, returning premiums instead. Standard in California.
T
- Term life insurance
- Coverage for a fixed period, commonly 10, 15, 20, or 30 years, at a level premium. Pays the death benefit if the insured dies during the term; ends otherwise. The least expensive way to buy a large benefit. Read the guide →
U
- Underwriting
- The carrier's process of evaluating your application to decide whether to issue and at what class. Includes your answers, database checks, and sometimes records or an exam. Read the guide →
- Universal life
- A form of permanent insurance with flexible premiums and a cash value that earns interest. More complex than whole life; suited to specific planning needs. Read the guide →
W
- A rider that pays your premiums if you become totally disabled, keeping the policy in force.
- Whole life insurance
- Permanent coverage with fixed premiums, a guaranteed cash value, and sometimes dividends. Suits needs that never end; several times the cost of term for the same benefit. Read the guide →