Life insurance, decoded.
Every confusing word you'll run into while shopping for term life, explained in a sentence or two.
A
- A.M. Best rating
- A grade from AM Best, an independent agency that rates how financially strong an insurance company is and how likely it is to pay claims. Grades run from A++ (Superior) down to lower letters, so a higher rating means more confidence the company can keep its promises.
- Accelerated underwriting
- A faster way some insurers review your application. Instead of a medical exam, they use your answers plus data like prescription history, driving records and MIB reports to make a decision, often within days or even minutes. Not everyone qualifies, and some applicants may still be asked for an exam. Learn more
- Accidental death benefit
- Extra money paid if the insured person dies from a covered accident, usually added to a policy as a rider. It does not pay for deaths from illness, and it often has its own list of exclusions, so read the details before relying on it. Learn more
- Annual renewable term
- A type of term life insurance that covers you one year at a time. You can usually renew each year without new health questions, but the price goes up every year as you get older, so it often costs more over the long run than locking in a level premium. Learn more
- Application
- The form you fill out to ask an insurer for coverage. It asks about your age, health, habits, job and family medical history, plus who you want as your beneficiary. Answer every question honestly, because mistakes or missing details can cause problems with a claim later. Learn more
B
- Beneficiary
- The person, people or organization who receive the death benefit when the insured person dies. You choose them when you apply and can usually change them later, unless you named someone as an irrevocable beneficiary. Learn more
C
- Cash value
- A savings-like part of many permanent life insurance policies that can grow over time. You may be able to borrow against it or withdraw from it. Term life insurance does not build cash value, which is a big reason it usually costs much less. Learn more
- Claim
- The request your beneficiary sends the insurance company to collect the death benefit. It usually includes a claim form and a certified copy of the death certificate. Once the insurer reviews and approves it, the money is paid out. Learn more
- Contestability period
- A window, usually the first two years a policy is in force, when the insurer can review a claim and check the original application for mistakes or missing information. If something important was left out, the insurer may deny the claim or adjust the payout. After this period, it is much harder for them to challenge the policy. Learn more
- Contingent beneficiary
- Your backup beneficiary. This person or organization receives the death benefit only if your primary beneficiary has died or cannot accept it. Naming one helps keep the money from getting stuck in probate. Learn more
- Conversion option
- A feature in many term policies that lets you switch some or all of your term coverage into a permanent policy without a new medical exam. There is usually a deadline for converting, and the permanent policy will cost more. Rules vary by insurer and policy. Learn more
- Coverage amount
- How much money your policy will pay out if you die while it is active. It is the same thing as the death benefit or face amount. Many people pick an amount based on income, debts, a mortgage and future costs like childcare or college. Learn more
D
- Death benefit
- The money the insurance company pays your beneficiaries when the insured person dies while the policy is active. In the US, life insurance death benefits are generally not counted as taxable income for the people who receive them, though there are exceptions, so check with a tax professional. Learn more
- Decreasing term
- A type of term life insurance where the coverage amount shrinks over time while the premium usually stays the same. It is often matched to a debt that also shrinks, like a mortgage. Learn more
E
- Exclusion
- A specific situation a policy will not pay for, spelled out in the contract. Common examples can include certain risky activities or a death that happens during the suicide clause period. Exclusions vary by insurer, so it helps to read your policy. Learn more
F
- Face amount
- Another name for the coverage amount or death benefit. It is the dollar amount shown on the front page (the face) of your policy. Learn more
- Free look period
- A short window after your policy is delivered when you can cancel it and get a full refund of what you paid. It is often 10 to 30 days, depending on your state and the type of policy. Learn more
G
- Grace period
- Extra time after a missed premium due date when your coverage stays active and you can still pay. It is often about 30 or 31 days, depending on the state and policy. If you do not pay by the end, the policy may lapse. Learn more
- Guaranteed issue
- Life insurance that accepts you without health questions or a medical exam, as long as you fit the age range. Because the insurer takes on more risk, coverage amounts are usually small, prices are higher, and the full benefit may not be paid if you die in the first few years. Learn more
I
- Insured
- The person whose life the policy covers. When the insured dies while the policy is active, the death benefit is paid to the beneficiaries. The insured is often, but not always, also the policy owner. Learn more
L
- Lapse
- When a policy ends because premiums were not paid before the grace period ran out. Once a policy lapses, there is no coverage. Some insurers allow you to reinstate a lapsed policy within a set time, which may require new health questions. Learn more
- Level term
- The most common kind of term life insurance. Both the coverage amount and the premium stay the same for the entire term, such as 10, 20 or 30 years. Learn more
- Living benefits rider
- An add-on that may let you get part of your death benefit early if you are diagnosed with a qualifying serious illness, such as a terminal, chronic or critical illness. Any money you use is subtracted from what your beneficiaries receive. Availability and rules vary by insurer and state.
M
- Medical exam (paramedical exam)
- A short health check some insurers require before approving coverage. A trained examiner usually comes to your home or office to take your height, weight, blood pressure, and blood and urine samples. Many policies today can be approved without one. Learn more
- MIB (Medical Information Bureau)
- A membership organization that member insurers use to share coded information from past insurance applications, to help prevent fraud and catch mistakes. It does not hold your full medical records. You can request a free copy of your MIB report once a year. Learn more
N
- No-exam life insurance
- Life insurance you can get without a medical exam. Insurers instead use your application answers and outside data, like prescription and driving records, to make a decision. Whether you qualify, and at what price, still depends on underwriting. Learn more
O
- Owner
- The person who controls the policy. The owner pays the premiums, names and changes beneficiaries, and can cancel the policy. Usually the owner is also the insured, but one person can own a policy on someone else's life, like a spouse. Learn more
P
- Permanent life insurance
- Life insurance designed to last your whole life as long as premiums are paid, rather than for a set number of years. Whole life and universal life are common types. It often builds cash value and usually costs much more than term coverage for the same amount. Learn more
- Policy
- The written contract between you and the insurance company. It spells out who is covered, how much will be paid, who gets the money, what you pay and when, and any exclusions or riders. Learn more
- Primary beneficiary
- The first person, people or organization in line to receive the death benefit. If you name more than one, you can choose how to split the money between them, such as 50/50. Learn more
R
- Rated policy (table rating)
- A policy approved at a higher price than standard because of a health condition, risky job or hobby, or other factor. Insurers often use a table, such as Table 2 or Table B, to set how much extra you pay. It still gives you real coverage. Learn more
- Reinstatement
- Bringing a lapsed policy back into force. Insurers often allow this within a set time after a lapse if you pay the missed premiums, and they may ask new health questions. Rules vary by insurer and state. Learn more
- Rider
- An optional add-on to a life insurance policy that changes or adds to the coverage, sometimes for an extra cost. Examples include child riders, waiver of premium and living benefits riders. Which riders are available depends on the insurer and your state.
S
- Simplified issue
- Life insurance that skips the medical exam but still asks health questions on the application. It is usually faster to get than fully underwritten coverage, though prices may be higher and coverage amounts may be lower. Learn more
- Suicide clause
- A policy rule that limits the payout if the insured dies by suicide within a set time after the policy starts, usually two years (one year in some states). In that case, the insurer typically refunds the premiums paid instead of paying the full death benefit. After that period, suicide is generally covered. Learn more
T
- Term length
- How many years your term life insurance lasts, such as 10, 20 or 30 years. Many people pick a length that covers the years others depend on their income, like until the mortgage is paid off or the kids are grown. Learn more
- Term life insurance
- Life insurance that covers you for a set number of years. If you die during that time, your beneficiaries receive the death benefit, and if you outlive the term, coverage simply ends. It is usually the most affordable way to get a large amount of coverage. Learn more
U
- Underwriting
- The process an insurer uses to decide whether to approve you and at what price. It looks at your application answers and may include records checks, an MIB report, prescription history or a medical exam. Learn more
- Underwriting class
- The health and risk category you are placed in after underwriting, which sets your price. Common classes, from lowest to highest cost, include Preferred Plus, Preferred, Standard Plus and Standard, with separate classes for tobacco users. Names and rules vary by insurer. Learn more
- Universal life insurance
- A type of permanent life insurance with more flexible premiums and death benefits than whole life. Part of what you pay builds cash value that earns interest. If the cash value runs low, you may need to pay more to keep the policy active. Learn more
W
- Whole life insurance
- A type of permanent life insurance that lasts your whole life, with premiums that usually stay the same and a guaranteed cash value that grows slowly. It typically costs many times more than term life for the same coverage amount. Learn more
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