Traditional Life key terms

The portion of an insurance premium that covers expected mortality claims and is calculated from mortality tables, without any allowance for company expenses, taxes, or profit.

The total amount a policyholder pays for coverage, consisting of the pure premium plus a loading charge that covers operating expenses, commissions, taxes, contingencies, and profit margin.

The expense component added to the pure premium to fund insurer operations such as underwriting, administration, agent compensation, premium taxes, and reserve contributions.

The lump-sum amount that, invested at an assumed interest rate, would exactly fund the present value of all expected future death claims for a given policy.

A statistical chart showing, for each age, the probability of dying within a year and the number of survivors from a starting group, used to price life insurance products.

The frequency at which illness or disability occurs within a population over a period, used to price health-related riders and disability income coverage rather than death benefits.

A premium structure in which the policyholder pays the same amount each year for the life of the payment period, averaging rising mortality costs over time and building cash value.

A liability the insurer holds to meet future obligations to policyholders; for level-premium whole life it represents the accumulated excess of early premiums over early mortality costs.

The accumulation within a permanent policy, funded by the reserve and net of surrender charges, that the owner can borrow against or receive on surrender or lapse.

Coverage designed to remain in force for the insured's entire lifetime, provided premiums are paid, and which typically accumulates cash value on a tax-deferred basis.

A permanent contract with level premiums payable for life or a stated period, guaranteed death benefit, and guaranteed cash value growth that is not tied to market performance.

A form of whole life insurance in which premiums are payable until the insured's death or age 100, whichever occurs first, and the policy matures at the endowment age.

A whole life variant in which premiums are compressed into a shorter period, such as 10, 20, or 30 years, while coverage continues for life and cash value builds faster.

A contract or provision under which the insurer pays the face amount to the owner if the insured survives to a specified maturity age, rather than only upon death.

Temporary coverage that pays a death benefit only if the insured dies within the stated policy period, with no cash value and usually the lowest premium per dollar of coverage.

Term coverage in which both the face amount and the premium remain constant for the duration of the term, such as 10, 20, or 30 years.

Term coverage whose face amount declines on a schedule over the policy period while the premium stays level, often used to match a shrinking mortgage or loan balance.

A term policy feature allowing the insured to continue coverage for additional periods without providing new evidence of insurability, at premiums that increase with attained age.

A term policy right permitting the insured to exchange the term coverage for a permanent policy without new underwriting, typically at a premium based on attained or original age.

A term product that refunds some or all premiums paid if the insured survives the term, funded by charging a higher premium than a standard term policy.

A contract in which an insurer accepts a lump sum or series of payments and in return pays a stream of income, designed to liquidate principal and protect against outliving assets.

The phase of an annuity before income payments begin, during which premiums grow on a tax-deferred basis and the contract owner retains access to the account value.

The irreversible election to convert an annuity's accumulated value into a scheduled series of income payments, after which the contract generally cannot be surrendered for cash.

A deferred or immediate annuity in which the insurer guarantees a minimum interest rate on the account value and a fixed dollar amount of income at annuitization.

An annuity whose account value fluctuates with the performance of underlying subaccounts, shifting investment risk to the contract owner and requiring securities registration and a prospectus.

An investment pool held apart from the insurer's general assets in which variable product funds are invested, so that investment results and risk pass through to the contract owner.

A fee deducted when an owner withdraws more than the permitted free amount or cancels a deferred annuity or cash value policy during an early surrender period.

The person, trust, or entity named by the policyowner to receive the death benefit proceeds when the insured dies, with no right to the policy during the insured's lifetime.

The first-named recipient of policy proceeds, who is paid before any contingent beneficiary and whose share passes only if they predecease the insured or disclaim.

A backup beneficiary who receives the death benefit only if all primary beneficiaries have died before the insured or otherwise are unavailable to take the proceeds.

A settlement method that divides proceeds equally among the living beneficiaries in a class, so the share of a deceased beneficiary does not pass to that beneficiary's heirs.

A settlement method that divides proceeds by branch of family, so a deceased beneficiary's share passes to that beneficiary's own descendants rather than being redistributed.

A provision barring the insurer from contesting the validity of the contract or denying a claim based on misrepresentation after the policy has been in force for a stated period, usually two years.

A provision limiting the insurer's liability to a return of premiums paid if the insured dies by suicide within a specified period, commonly the first two years.

The period, typically 30 or 31 days after a premium due date, during which the policy remains in force and the premium may still be paid without a lapse.

Termination of coverage that occurs when a required premium is not paid within the grace period and no automatic nonforfeiture option keeps the policy in force.

The restoration of a lapsed policy, usually requiring evidence of insurability, payment of overdue premiums with interest, and repayment or reinstatement of any policy loan.

Guaranteed choices available when a permanent policy lapses or is surrendered, allowing the owner to take cash, reduced paid-up insurance, or extended term coverage.

A borrowing against a policy's cash value, secured by the contract, which accrues interest and reduces proceeds if unpaid; the insurer may not deny it once cash value exists.

An optional provision under which the insurer advances a loan against cash value to pay an overdue premium, preventing lapse when the premium is otherwise unpaid at the grace period's end.

A rider that suspends premium payments while the insured is totally disabled beyond an elimination period, keeping the policy and its benefits in force.

A rider permitting the insured to receive part of the face amount early upon proof of terminal illness or another qualifying condition, reducing the benefit paid at death.

The insured's age on a given policy anniversary or at a given date, used to set renewal premiums, conversion rates, and cash value factors rather than issue age.

A false statement on an application that would have influenced the insurer's decision to issue coverage or the premium charged, potentially allowing rescission during the contestable period.

A receipt given with the initial premium that creates coverage only if the application is later approved as submitted and all conditions, including insurability, are satisfied.

A right allowing the policyowner to return a newly delivered policy for a full premium refund within a stated number of days, commonly 10 to 30 depending on the product.

A life policy that fails the seven-pay funding test, losing favorable tax treatment so that loans and withdrawals are taxed as income first and may incur a penalty before age 59½.

A tax-free transfer of a life insurance policy, annuity, or endowment contract into a like-kind contract without recognizing gain, subject to replacement rules.

A financial or emotional stake in the continued life of the insured that must exist at policy issue for the contract to be valid and enforceable.

The insurer's process of evaluating an applicant's health, occupation, hobbies, and financial profile to classify risk and decide whether and at what rate to issue coverage.

An unethical practice of inducing a policyholder to lapse or surrender existing coverage through misleading or incomplete comparisons, in order to sell a replacement policy.

Offering part of an agent's commission or any inducement not specified in the policy to persuade a buyer to purchase, an unfair trade practice prohibited by state law.

The legal obligation of an agent or insurer to act in the client's best interest, handling premiums and client information honestly and placing suitable coverage.