Reference
Glossary of life-insurance terms.
The vocabulary that turns up in policy documents, Society of Actuaries materials, and CFP Board needs-analysis coursework. Each entry is short and links to longer treatment where one exists.
- Accelerated death benefit
- A rider allowing the insured to access part of the death benefit while still living, on diagnosis of terminal or chronic illness. See the riders page.
- ADB (accidental death benefit)
- A rider that doubles or triples the death benefit if the insured dies in a covered accident. Marginal value for most insureds.
- Beneficiary
- The person, persons, or entity (trust, charity, estate) named to receive the death benefit. Updated via the carrier’s beneficiary form, which generally controls over a will.
- Cash value
- The savings-deposit component of a permanent life-insurance policy, accumulated tax-deferred and accessible via loan or surrender. Absent in term policies.
- CFP®
- Certified Financial Planner™. The professional designation administered by the Financial Planning Standards Board.
- Contestability period
- The first 1–2 years of a policy during which the carrier can rescind on discovery of material misrepresentation in the application. After this period, the policy is incontestable except for fraud or non-payment.
- Conversion rider
- A feature on a term policy allowing conversion to a permanent product without re-underwriting, typically valid through the first 10–15 years of the term.
- Death benefit
- The face amount paid to the beneficiary on the insured’s death. The headline coverage figure.
- DIME
- Debt + Income + Mortgage + Education. A needs-analysis method that builds coverage from explicit obligations. See the DIME page.
- FSA
- Fellow of the Society of Actuaries. The senior actuarial designation in the US.
- Human Life Value (HLV)
- A needs-analysis method computing the present value of the insured’s future contribution to dependents net of personal consumption. Introduced by S.S. Huebner in 1927. See the HLV page.
- IUL
- Indexed Universal Life. A permanent product whose cash-value crediting rate is linked to a stock-market index, capped on upside and floored at zero. Marketing claims often exceed realised performance.
- Lapse
- Termination of a policy due to non-payment of premium. Most policies have a 30–60 day grace period before lapse takes effect.
- Level premium
- A premium that does not change over the term. Standard for term-life policies and whole-life policies.
- MAAA
- Member of the American Academy of Actuaries. Required for actuaries who provide statements of actuarial opinion in the US insurance industry.
- MIB
- Medical Information Bureau. A database of prior-application health disclosures shared across most US life carriers, used during underwriting to detect inconsistencies.
- MEC
- Modified Endowment Contract. A permanent policy that fails the IRS “7-pay test” and loses some of the tax-favoured treatment of withdrawals and loans. Usually unintended; agents should structure policies to avoid MEC status.
- NAIC
- National Association of Insurance Commissioners. The US standard-setting body for state insurance regulators.
- Personal consumption ratio
- The fraction of household income the insured consumes themselves. Used in the HLV calculation. Typically 25–35 % for primary earners with dependents.
- Premium
- The payment made by the insured to keep the policy in force. Annual, semi-annual, quarterly, or monthly modes available; annual is typically the cheapest.
- Rate class
- The carrier’s classification of an insured for premium-pricing purposes. Top class is typically “Preferred Plus”; tobacco-use class is the most expensive.
- Rider
- An optional add-on to a base policy that modifies coverage. See the riders page.
- ROP
- Return-of-Premium rider. Refunds total premiums paid if the insured outlives the term. Costly relative to the alternative of investing the premium difference.
- SOA
- Society of Actuaries. The professional body for life and health actuaries in the US and Canada, administering the FSA and ASA designations.
- Survivor benefits (Social Security)
- US Social Security benefits paid to surviving spouses and children based on the deceased’s earnings record. Partial offset to needed life-insurance coverage.
- Term life
- Coverage for a defined term (10–30 years), with no cash value. The cost-effective product for most working-age households. See the term vs whole page.
- Universal life (UL)
- A permanent product with flexible premiums and a credited-rate cash-value account.
- Variable universal life (VUL)
- A UL variant where the cash-value account is invested in sub-accounts similar to mutual funds. Higher upside, real downside risk.
- Waiver of premium
- A rider that waives premium payments if the insured becomes totally and permanently disabled. Especially useful for self-employed insureds.
- Whole life
- A permanent product with level premiums for life, guaranteed cash-value accumulation, and tax-deferred growth. Substantially more expensive per dollar of coverage than term.