Life Insurance Glossary

Glossary of Life Insurance Terms
Life Insurance Glossary
Life Insurance Glossary: 100+ Terms you need to know for life insurance

This life insurance glossary compiles 100+ of the most common terms you are likely to hear and will definitely need to know when you are looking to buy life cover. Our glossary of the most common life insurance and premium financing terms and conditions will help guide you, so you can make an informed choice of which policy is right for you and how best to finance the cost of buying it.

  • A

    Actuary

    A life insurance actuary analyses and assesses the risks of offering life insurance products. Life insurance actuaries calculate the probability of death which informs the price of life insurance policies.

    Age Attained

    Age attained is a term used in life insurance to refer to the age at which A policyholder is expected to reach when their policy comes into effect. For example, a policy with an age attained of 65 would mean that the policyholder is expected to reach the age of 65 when the policy begins. Age attained is often used to determine the premiums and benefits of a life insurance policy, as well as any potential discounts or surcharges that may apply. It's important to keep in mind that age attained is not the same as the policyholder's current age, but rather the age at which certain provisions of the policy are expected to take effect.

    Applicant (Life Insurance)

    A life insurance applicant is a person, or company, who is in the process of applying for a life insurance policy. The applicant will typically need to provide personal or company details and financial information. The individual being insured will also need to undergo a medical examination, and agree to the terms and conditions of the policy in order to be considered for coverage. The insurance company will use this information to determine the applicant's risk profile and calculate the premiums for the life policy. The policy will provide a cash payout to the designated beneficiaries upon the policyholder's death. Typical benenficiaries may be family members, or a company if the policy is a key person policy.

    Application

    The forms are completed by the individual requesting cover from a life insurer. These forms request information that helps the life insurance company assess the risk of the individual applying for insurance. The statements made in the application guide an underwriter in deciding how much premium they will charge a prospective life insured.

    Assignment of a Life Insurance Policy

    The assignment of a life insurance policy refers to the transfer of ownership of the policy from one person (the assignor) to another person (the assignee). The transfer of ownership can also be from a company to another company, or trust arrangment.

    This transfer can be done for a variety of reasons, such as to use the policy as collateral for a loan or to provide financial security for a spouse or a business.

    To assign a life insurance policy, the assignor must complete a legal document called an "assignment form" and have it signed and notarised. The assignment form should include the policy number, the names and contact information of the assignor and assignee, and the date of the assignment.

    The assignee becomes the new owner of the policy and is responsible for paying any premiums due on the policy. The assignee also has the right to change the beneficiary of the policy, as long as the change is in accordance with the policy's terms and conditions.

    The assignment of a life insurance policy can have tax implications for both the assignor and assignee. It's a good idea to consult with a financial advisor or tax professional before assigning a life insurance policy.

    Attending Physician's Statement (APS)

    An Attending Physician's Statement (APS) is a document that is completed by a physician, doctor or medical specialist who is caring for a patient. It is often used to provide information about the patient's medical condition and treatment to life insurance companies. The APS typically includes information about the patient's diagnosis, prognosis, current symptoms, and functional limitations. It may also include recommendations for further medical treatment or evaluation. The APS is used by insurers to help them classify the risk class of a life insurance applicant.

  • B

    Backdating for Age

    Backdating can be used to make the age of the life insured at the policy issuance lower than it actually is in order to receive a lower premium. Many insurance companies allow backdating of policies for up to six months.

    Beneficiary

    A person who will benefit from receiving the proceeds of an insurance policy upon the death of the life insured. There can be more than one beneficiary of a life policy and the list of beneficiaries can include an individual, a company, a trust or a charity.

    Primary Beneficiary

    A primary beneficiary is a person or organisation that will receive the first payment from the insurance company 

    Contingent Beneficiary

    A contingent beneficiary is a person or organisation that the insurer will pay if the primary beneficiary is deceased or no longer in existence if a company, trust or charity.

    Business Life Insurance

    Life insurance can be bought by a business to insure its key individuals. For example, life insurance is owned by a business on the life of a key employee and insurance is owned by a business partner on the life of another business partner.

    Buy Sell Agreement

    A buy-sell agreement, also known as a buyout agreement, is a legally binding contract that provides a plan for the ownership transition of a business in the event of the death, disability, or retirement of one of the owners. It can also be triggered by an owner's desire to sell their ownership interest to another person or entity. The agreement outlines the terms and conditions under which a business owner's ownership interest can be bought and sold, including the process for valuing the business and determining the purchase price. It is important for business owners to have a buy-sell agreement in place to protect the value of their business and ensure a smooth ownership transition.

  • C

    Carrier

    A life insurance carrier is a company that offers life insurance policies to individuals or groups. When you purchase a life insurance policy, you pay premiums to the carrier, and in return, the carrier agrees to pay a death benefit to your designated beneficiaries in the event of your death.

    Cash Surrender Value

    The cash surrender value of a universal life insurance policy is the amount of money that the policyholder receives if they decided to cancel the policy and receive a cash payout. This value is determined by the insurance company and is based on a number of factors, including the premiums that have been paid, the performance of the underlying investments, and the amount of death benefit provided by the policy. In general, the cash surrender value of a universal life insurance policy will be less than the face value of the policy in the early years, as the insurance company needs to cover its costs and make a profit. However, the cash surrender value can accumulate over time and policyholders can receive back more value from the policy than their investment.

    Cash Value

    The cash value of some life insurance policies, which typically grows over time earning a rate of interest or in line with stock market returns. The policyholder can cash in the policy and receive the cash surrender value.

    There is a difference between a policy’s cash surrender value and its guaranteed cash surrender value. The guaranteed cash value of a life policy can usually be borrowed against by its owner from the insurance company, a third party life premium financing company or a bank.

    Change of Beneficiary

    A change of beneficiary refers to the process of modifying the individual or organisation that is designated to receive the benefits or proceeds of a contract or legal arrangement, such as an insurance policy or will. The process for making a change of beneficiary can vary depending on the specific terms of the contract or arrangement and may require the completion of certain forms or the provision of documentation. It is important to carefully review the terms of the contract or arrangement and any applicable laws before making a change of beneficiary to ensure that the change is valid and will be recognised by the life insurer and other relevant parties.

    Change of Beneficiary Form

    A change of beneficiary form is a legal document that is used to change the beneficiary of a life insurance policy. The form is typically provided by the insurance company that issued the policy, and it includes instructions for how to complete the form and submit it to the company.

    To change the beneficiary of a life insurance policy using a change of beneficiary form, you will need to provide the following information:

    • The policy number and the name of the insurance company
    • Your name and contact information
    • The name and contact information of the current beneficiary
    • The name and contact information of the new beneficiary
    • Your signature, as the policyholder

    You may also need to provide additional documentation, such as proof of identity for the new beneficiary, depending on the requirements of the insurance company. Once you have completed the form and gathered any required documentation, you can submit it to the insurance company for processing. The company will then update the policy to reflect the change in beneficiary.

    Claim

    If you are the beneficiary of a life insurance policy and the insured person has passed away, you can make a claim with the insurance company to receive the death benefit. To file a claim, you will need to provide the insurance company with a certified copy of the insured person's death certificate and some other basic information. The insurance company may also ask for proof of your relationship to the insured person and may require you to fill out a claim form.

    To speed up the process, it can be helpful to have a copy of the life insurance policy and any other relevant documents, such as a copy of the insured person's will, on hand when you file the claim. If you have any questions about the process or are unsure how to file a claim, you should contact the insurance company or the life insurance agent for the policy.

    Clause

    A provision added to a life insurance contract, for example, a suicide clause. For example, most insurers will have a clause in their contract stating that they will not payout in the event of a suicide of the life insured within the first two years of taking out a policy.

    Collateral Assignment

    The collateral assignment document is a pledge document signed, typically, by the life insured, of the life policy as security. For example, a collateral assignment document to a lender for the repayment of a premium finance loan taken out to purchase the policy.

    Commissions

    A payment or fee that is paid to a life insurance broker or financial adviser for making the sale of a life policy.

    Contestability Period

    The contestability period is the time during which an insurance company can refuse a claim if a material misrepresentation has been made in the application. This period usually covers the first two years a life insurance policy is in force. After the two-year period, the policy becomes incontestable and an insurer must pay out any claim.

    Contingent Beneficiary

    A contingent beneficiary receives the policy proceeds if the primary beneficiary dies before the life insurance proceeds are payable. The contingent beneficiary is also known as the secondary beneficiary.

    Credit Rating Agency

    A credit rating agency assesses the financial strength of a life insurance company. Credit agencies include Standard & Poor's, Moody's, Fitch and A.M. Best. Ratings are awarded to life insurers according to the risk they are taking and the liabilities they hold. It is the ability to meet these long term obligations that is important for policyholders and financial advisers who recommend life insurance products. See also Financial Strength Rating.

  • D

    Death Benefit

    The death benefit is the amount of money that a life insurance policy will pay out to the designated beneficiaries of the policy upon the death of the insured person. The death benefit is also known as the face value, and is typically stated in the policy when it is issued. It can be used by the beneficiaries to cover expenses such as funeral costs, outstanding debts, and other expenses that may arise after the insured person's death. The death benefit is paid out as a lump sum. It is important to carefully consider the amount of the death benefit when purchasing a life insurance policy, as it should be sufficient to meet the financial needs of the policy's beneficiaries.

    Decreasing Term Life Insurance

    A type of term life insurance policy with a death benefit that decreases every year. For example, a decreasing term life insurance policy can be used to cover a loan balance that decreases over time.

  • E

    Effective Date

    The effective date is the date the life policy is considered to be in force.

    Equity Index Universal Life Insurance Policy

    Equity index universal life insurance policy is a form of permanent life insurance, which is also known as indexed universal life insurance, or jumbo insurance.

    Estate Planning

    Estate planning prepares an individual’s financial affairs for when they die. One of the tasks in estate planning is to deal with the immediate liquidity needs of the family and pay any taxes that become due upon the death of the individual. Both these needs are often funded with a payout from life insurance.

    Evidence of Insurability

    A statement or proof of an individual’s health and financial affairs. Information submitted may include medical records, bank statements and property records. This evidence is submitted to the insurer as part of its assessment in underwriting the individual applying for life cover.

    Exclusions

    Specific conditions that are listed in an insurance policy for which the policy will not provide life cover.

    Expiration Date

    The date on which an insurance policy stops providing life cover to the insured individual.

    Extra Premium

    An amount charged in addition to the regular premium to cover any extra risk like hazardous activities, which could include sports car racing or a private flying hobby.

  • F

    Face Amount

    The face amount of a life insurance policy is the amount of money that the policy will pay out to the beneficiaries upon the death of the insured person. It is also sometimes referred to as the death benefit or the policy's coverage amount.

    Financial Strength Rating

    A financial strength rating is a forward-looking opinion from a credit rating agency about the creditworthiness of a life insurer with respect to its current and future financial obligations. Credit rating agencies like Standard & Poor’s, Fitch Ratings, A.M. Best and Moody’s are often used to assess and rate an insurer’s financial strength. These ratings are also used by professional wealth managers and insurance brokers when assessing which policy to recommend. Banks and premium finance companies also use the ratings to assess the creditworthiness of the life insurance policy as collateral for a loan, which is known as premium finance.

    However, it is important that investors in life insurance policies do not use this financial strength rating alone as an assessment or recommendation to invest in a particular product. It is also not an indication of the future performance of insurance policies.

    Financial strength ratings typically range from a ‘AAA’ rating to ‘CCC’. For example, ‘AAA’ is the highest possible rating and means a life insurer’s capacity to meet its debt obligations is very high. It also has an extremely low solvency risk from changes in business, financial, or economic conditions.

  • G

    Grace Period

    A grace period is a specific period of time during which a life insurance policyholder can make a payment on their policy without incurring a late fee or having the policy cancelled for non-payment. Most life insurance policies include a grace period of 30 days or more, during which the policyholder can make a payment to bring their policy up to date. If the policyholder is unable to make a payment within the grace period, the policy may be cancelled or lapsed, depending on the terms of the policy and the laws of the country in which the policy was issued. It is important for policyholders to make their payments on time to ensure that their policy remains in force.

    Group Life Insurance

    Group life insurance is a type of life insurance coverage that is provided to a group of individuals, usually through their employer or a membership organization. Group life insurance policies are typically purchased by the group's sponsor (such as an employer) and are made available to all eligible members of the group at a discounted rate. The terms of group life insurance policies may vary, but they generally provide a death benefit to the beneficiaries of the policy in the event of the insured person's death. Group life insurance policies can be a convenient and affordable way for individuals to obtain life insurance coverage, especially if they might have difficulty qualifying for an individual policy due to their age or health status.

    Guaranteed Rates

    Guaranteed rates are fixed premiums or other terms that are guaranteed to remain unchanged for a specific period of time in a life insurance policy. Guaranteed rates may be offered on certain types of life insurance policies, such as whole life or universal life insurance. These types of policies often have guaranteed premiums, meaning that the policyholder's premiums will not increase during the policy's guaranteed rate period. Guaranteed rates can provide policyholders with stability and predictability when it comes to their life insurance premiums, as they can be assured that their premiums will not increase during the guaranteed rate period. It is important to note that guaranteed rates may not apply to the entire life of the policy and may only be in effect for a specified period of time.

  • H

    Hazardous Activities

    Hazardous activities for life insurance applications include scuba diving, private aviation, sky diving and mountain climbing. If you participate in a hazardous activity you may not qualify for life insurance because the insurer does not want to take risk of insuring your life. It is important to check which activities are excluded and to make sure your application is completed with all the information required. Failure to disclose a hazardous activity as a hobby may mean your insurance policy becomes ineligible and it may not payout.

    Net Worth Individual

    A high net worth individual (HNWI) is a person with at least $1,000,000 of assets which include cash, bonds, shares but excludes real estate according to Cap Gemini in its World Wealth Report 2020. See also Very High Net Worth and Ultra High Net Worth.

  • I

    Insurance Company

    A company that provides insurance coverage, which is also known as the insurer. Insurance policies are issued in the case of life insurers to individuals looking for life cover to protect their family or business from a financial loss.

    Insurability

    The insurability of an individual is based upon the criteria set out by an insurance company for the person applying for life insurance. Insurability will include underwriters reviewing an individual’s medical records, application for cover and any supporting documentation.

    Insurable Interest

    An insurable interest is required when purchasing life insurance for oneself or when taking out a life policy on another person’s life. There must be the potential for financial loss if the person being insured dies. For example, if the main income earner of a family dies, it would cause the family hardship through financial loss of that income. If a key person in a business who was responsible for significant sales dies, this would qualify as a financial loss to the company. People not subject to financial loss do not have an insurable interest.

    Insurance Policy

    The physical document issued by an insurance company to the policy owner. The insurance policy is a written contract between the insurance company and the policy owner which includes the face amount, the premium cost and clauses

    Insured

    The individual is covered by an insurance policy. Also known as the Life Insured.

    Irrevocable Beneficiary

    An irrevocable beneficiary is a beneficiary who cannot be changed without the written consent of that person. Any changes to the policy can only be made with the owners signature and the beneficiary.

    Issue Date

    The issue date is the date on which an insurance policy is issued. The issue date may be the effective date of the policy.

    Insurer

    An insurer is the same as the insurance company which is the company providing the insurance.

  • J

    Jumbo Universal Life Insurance

    Universal life insurance is also known as jumbo life insurance. It is so-called because of the large insured amounts of life cover available. Jumbo universal life insurance combines a high death benefit with an investment component that offers a cash surrender value.

    This type of life policy is permanent life insurance and is favoured by high net worth individuals looking to protect and grow their wealth. See also Universal Life Insurance and Different Types of Universal Life Insurance.

  • K

    Key Person Insurance

    A life insurance policy can be bought by a business to protect itself financially from the loss of key people in the company. The policy is bought on the life of a key person, or people, in the business whose loss would leave a significant financial strain due to their importance. For example, a chief executive officer, a key salesperson or somebody with critical product knowledge. The policy proceeds are used to offset the financial loss experienced by the company due to the person's death.

    A key-person insurance policy can be owned by the company. The business is typically the beneficiary of the life insurance payout if it loses the key company member whose life is been insured.

    Cross Option Agreement

    Another type of key person insurance arrangement is where a business owner buys a life insurance policy on their own life and names another co-owner of the business as the beneficiary of the policy. This arrangement enables the co-owners to purchase each other’s share of the business if the other dies. A cross option agreement is typically put in place which is a legal agreement setting out the terms and conditions on the share sale in this type of arrangement.

  • L

    Lapse

    If a life insurance policy lapses, it means the life cover has ended due to the non-payment of the premium.

    Length of Coverage

    The length of time covered by a life insurance policy. The length of coverage is important when choosing a term life insurance policy. Selecting a time period that will cover the right timeframe is important. For example, if you are taking out a 20-year loan to buy real estate, you may consider matching the time frame of that loan with a 20-year term life insurance policy to match the proposed period you have the debt for.

    Level Premium

    A level premium remains the same throughout the time period stated in the insurance policy contract.

    Level Term Insurance

    A type of term life insurance policy where the life cover amount (face value) remains the same throughout the period specified in the insurance policy.

    LICAT

    The Life Insurance Capital Adequacy Test (LICAT) rating is a Canadian regulatory measure of a life insurance company's ability to meet its financial obligations over the long term, typically over a period of more than one year. It takes into account the company's financial strength, including its solvency margins and capitalisation, as well as its business model and risk profile.

    The LICAT rating is used by investors, regulators, and other stakeholders as an indication of the creditworthiness and financial stability of the insurance company. It is one of the factors that can be used to evaluate the risk of investing in the company's debt securities or policy liabilities.

    Life Expectancy

    Life expectancy is a statistical measure that reflects the average time that a person is expected to live based on their current age and gender. It is calculated by taking into account various factors such as genetics, lifestyle, country of residence, gender and access to healthcare. In general, global life expectancy has increased over time due to advances in medicine and public health improvements. However, life expectancy can vary widely.

    Life Insurance

    The life insurance cover an insurance company is prepared to offer an individual. The insurer will issue a life insurance policy that states the death benefit payable when the life insured dies.

    Life Insurance Trust

    A life insurance trust is a legal entity that is created to hold life insurance policies for the benefit of designated beneficiaries. The trust is the owner and beneficiary of the policy, and the trust's assets, in this case, the life insurance policy, are managed by a trustee according to the terms of the trust agreement. The trust is typically set up to help protect the policy proceeds from being included in the insured person's estate for estate tax purposes, and to ensure that the policy proceeds are used for the intended purposes, such as providing financial support for a spouse or children.

    Lump Sum Death Benenfit

    A lump sum death benefit is a payment made to the beneficiary of a life insurance policy after the policyholder dies. The beneficiary can be an individual or an entity, such as a trust or a business. The amount of the benefit is typically specified in the policy and is paid out to the beneficiary in a single payment. The beneficiary can use the funds from the lump sum death benefit to cover expenses related to the policyholder's death, such as funeral and burial costs, and can also use the funds to support themselves financially if the policyholder was a primary source of income.

    Life Insured

    A life insured is a person who has a life insurance policy. The policy is a contract in which the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured. The life insured pays premiums to the insurer in exchange for this protection. Life insurance can provide financial security for loved ones and can be used to help pay for end-of-life expenses, such as funeral costs, outstanding debts, and other financial obligations. It can also be used to provide income replacement for dependents or to fund education or other long-term goals.

    Life Expectancy

    Life expectancy is the age at which a person is expected to live. Life expectancy is calculated by an actuary and is based on the statistical averages of a population. This calculation helps an insurer decide how much it will charge to insure an individual’s life, before taking into consideration other factors like medical history and lifestyle factors.

  • M

    Material Misrepresentation

    A material misrepresentation is a statement of fact, that is made in a life insured’s application that is not true or incorrect. If a material misrepresentation is found to have been made, it will invalidate the life insurance policy. If the fact(s) stated had been correctly detailed, the life insurance company may have chosen to refuse the applicant life cover or may have requested a higher premium to be paid for the policy.

    Medical Examination

    A medical exam is undertaken by a doctor in order to provide an accurate and current picture of the health of the individual applying for life insurance. Medical examinations form part of the underwriting procedure for a life insurance policy.

    Multi-Pay Premium Finance

    Some insurance companies allow the life insured, or policy owner, to spread their life insurance premiums over a period of time, for example, 2 to 30 years. Spreading the cost of life insurance premiums can be helpful for cash flow. Multi paying for a life insurance policy will cost more because the life insurer is not receiving all the premium upfront.

  • P

    Permanent Life Insurance

    Permanent life insurance offers life insurance cover for the whole of the life insured life, unlike term insurance which is for a specific and defined period of time. Some permanent life insurance policies have a cash-in value available to the policyholder if the policy is cancelled.

    The premiums of some types of permanent life insurance solutions like universal life insurance are invested either in an insurance company’s own funds or in a selection of funds chosen by the policyholder and accepted by the insurance company. The investment returns can lead to the cash value of a policy growing, or falling, during the life of the policy.

    The cash value can be accessed either through a loan or as a partial or full withdrawal. Any withdrawal from the policy will affect the ability of the policy to pay out the full death benefit.

    Policy

    The policy is the signed and dated insurance contract document issued by an insurance company to the policy owner. The policy owner may be different to the life insured.

    Policy Anniversary

    The policy anniversary is the anniversary date of when the policy was issued.

    Policy Date

    The policy date is the day, month and year upon which the insurance policy becomes effective.

    Policy Fee

    A policy fee is charged by some insurers to cover expenses like policy administration incurred by the insurance company. The policy fee is usually included in the premium.

    Policy Loan

    A policy loan is a loan made by the insurance company to the policy owner. The loan is secured by the policy's cash value.

    Policy Owner

    The policy owner can be an individual, company or trust which owns a life insurance policy. The owner of the life policy may, or may not, be the same as the life insured individual. The owner has all the contractual rights of the policy. A common scenario in which a policy owner is different to the life insured is when a policy is being premium financed. In this scenario, a trust or company will buy a policy on the life of an individual. The trust or company will be the owner of the policy and it will take out finance to fund the premium from a bank or specialist premium finance company.

    Policy Proceeds

    Policy proceeds are the amounts paid out upon the death of the life insured, the policy surrender value or the value of the policy at maturity.

    Premium

    A premium is a payment, or one of the several payments, made by the life insured or the policy to buy an insurance policy. Premiums for a life insurance policy are usually made yearly, half-yearly, quarterly or monthly.

    Primary Beneficiary

    The person(s) designated by the policy owner to which the proceeds of a life insurance policy will be paid upon the death of the insured.

    Proceeds

    The amount payable under the terms of a life insurance policy upon the insured's death or upon the maturity of an endowment.

    Proposed Insured

    The person named in a life insurance application is the person whose life is to be covered by the insurance.

  • Q

    Quote

    A life insurance quote is the estimated cost, or premium, that a life insurance applicant will pay for their life insurance policy. A life insurance quote is based on a range of factors including the type of life policy being applied for, age, gender, health, smoking status and the country the life to be insured lives in.

    All life insurance quotes are illustrated estimates of the cost and the final rate will be decided by an insurance company’s underwriter.

    QNUPS

    The definition of QNUPS is a Qualifying Non-UK Pension Scheme. QNUPS is an offshore pension plan used for retirement planning. QNUPS are unapproved non-UK pension schemes typically used by high net worth individuals as part of retirement and estate planning.

  • R

    Rating

    A rating is the category given to a life insurance applicant by an insurer and represents the risk that individual is to the insurer.

    The categories are based upon health status, smoking status and other factors including participation in hazardous occupations.

    Ratings typically include a standard rating, preferred rating, super-preferred rating to rated and non-offered.

    If a life insurance rating is applied, the basis for the additional cost compared to a standard rating is because the individual’s life is classified as a greater than normal risk for the insurance company.

    Reinstatement

    Reinstating a policy that has lapsed can be achieved by paying all the outstanding premiums with any interest due. Evidence of insurability will also usually be required from the life to be insured.

    Revocable Beneficiary: A type of beneficiary designation that can be changed without the beneficiary's consent.

    Rider

    A rider is an optional feature that can be added to a life insurance policy for an additional cost. Riders can provide additional life cover or benefits beyond what is included in the base policy. Some common types of riders include:

    • Accidental death benefit rider: provides additional death benefit if the policyholder dies as a result of an accident
    • Long-term care rider: provides coverage for the policyholder's long-term care needs, such as nursing home care or in-home care
    • Waiver of premium rider: waives the policyholder's premium payments if they become disabled and are unable to work
    • Child term rider: provides coverage for the policyholder's children

    Riders can be a good way for policyholders to tailor their coverage to meet their specific needs and protect their loved ones. It's important to carefully consider which riders are right for you, as they can add significantly to the cost of a life insurance policy.

    Risk Classification (Individual)

    Life Insurers use a range of risk classifications to determine the amount of premium they will charge a client to insure their lives. Life insurance risk classification is stated in two different ways:

    • Non-Smoker
    • Smoker

    A non-smoker risk classification carries the lowest premiums compared to a smoker risk class. Typical risk classification ratings are:

    Non-Smoker Classification

    • Super Preferred
    • Preferred
    • Standard Plus
    • Standard

    Smoker Classification

    • Preferred
    • Standard

    Super Preferred and Preferred Rating Classes: the best premium rate classes available on life insurance policies for applicants that are determined to be in better than average health.

    Standard Plus Ratings Class: better than average rating class for life insurance applicants who are higher than average health.

    Standard Rating Class: the standard rating class for an individual who has average health when applying for life insurance according to an insurance company's underwriting guidelines.

    Risk Rating (Country)

    Life insurers typically use ratings to indicate the risk of providing insurance coverage to individuals or groups in different countries. These ratings are based on a variety of factors, such as the country's political stability, economic strength, and public health infrastructure. It's important to note that these ratings are not fixed and can change over time as conditions in the country change.

    'A' Rated Risk Country

    An 'A' rated risk country is a country that is considered to be relatively low risk for life insurers. This rating is typically based on factors such as the country's economic stability, political stability, and the overall quality of its healthcare system. Life insurers will often charge lower premiums for policies covering individuals who reside in 'A' rated risk countries, as the risk of paying out on a policy is lower in these countries. It's important to note that the specific criteria used to determine a country's risk rating can vary depending on the insurer and the specific policy being offered.

    B Rated Risk Country

    A 'B' rated country is generally considered to have above-average risk in one or more of these areas, compared to other countries. This means that life insurers may charge higher premiums or place stricter underwriting guidelines on policies for individuals or groups living in a 'B' rated country, compared to those living in countries with lower risk ratings.

    C Rated Risk Country

    A 'C' rated risk country is one that is considered to have an above-average level of risk when it comes to life insurance. This rating is typically assigned to countries that have a higher incidence of factors that can affect the mortality rate of their citizens, such as political instability, war, terrorism, natural disasters, or diseases. Life insurers may be more cautious when underwriting policies for residents of 'C' rated risk countries, and may charge higher premiums to compensate for the added risk.

  • S

    Second to Die Life Insurance

    A type of life insurance that insures two people’s lives, typically a husband and wife. This type of life insurance policy is also known as a joint life second death policy. The death benefit of a second to die policy is payable upon the death of the last or second individual to die.

    Settlement

    A life insurance settlement is the receipt of a payout from a life insurance policy. This payment is usually made as a one-off lump sum.

    Single Premium Life Insurance

    A single premium life insurance policy requires only one premium to be paid to start the policy. An example of a single premium life insurance policy is universal life insurance.

    Suicide Clause

    A suicide clause is typically a two-year time period at the start of a life insurance contract in which an insurer will not pay a death benefit under the policy due to death by suicide. However, the original premium minus any policy loans will be returned to the policy owner.

    Surrender

    Surrendering a life insurance policy will cause the life cover to stop and any cash surrender value will be paid to the policy owner.

  • T

    Term Life Insurance

    Term life insurance is a basic type of life insurance policy that offers a cost-effective way of providing life cover for a fixed period of time, typically between 1 and 25 years. A term life insurance policy will only pay out if the life assured dies during the fixed term period of the policy. After the fixed term period ends, the term life cover also ends.

    Decreasing Term Insurance

    Decreasing term life insurance is another basic form of life insurance and like term insurance, it can offer a cheap and effective way of providing life cover for a fixed period of time. The major difference between term life insurance and decreasing term life insurance is that term cover offers the same level of cover throughout the life of the policy, whereas decreasing term cover will decrease the level of cover an individual receives throughout its term. For example, decreasing term insurance policies are used to cover gifts that may be Potentially Exempt Transfers (PETs) under United Kingdom tax law. Gifts made under this rule are subject to a decreasing level of taxation over a time period of 7 years, thereby making decreasing term insurance an option to cover this need.

  • U

    Ultra-High Net Worth Individual

    An ultra-high net worth individual (UHNWI) is a person with at least $30,000,000 of assets which include cash, bonds, shares but excludes real estate according to Cap Gemini in its World Wealth Report 2020. See also High Net Worth and Very High Net Worth

    Underwriter

    An underwriter is an individual who decides upon the risk classification of a life insurance applicant which decides the premium they will pay to be insured. Underwriters normally work within life insurance companies to help determine underwriting risks for an insurer.

    Underwriting

    Underwriting is the process of evaluating a life insurance application for life cover. Underwriting determines the risk classification of an applicant. A rating class is given for that person, or the insurer declines to offer cover to the applicant.

    Uninsurable Risk

    An uninsurable risk describes a life insurance applicant who is not acceptable for life insurance. The life insurance company could decide that there are risks that relate to the applicant's current health, medical history, occupation or hobby’s for example.

    Universal Life Insurance

    The definition of universal life insurance is a type of permanent life insurance that combines whole of life insurance with an investment component. A portion of the premium paid for the policy goes towards buying life cover with the remaining portion of the premium being invested. The type of investment made depends upon which type of universal life insurance is being applied for.

    Different Types of Universal Life Insurance

    Traditional Universal Life

    Traditional universal life insurance policies combine whole of life insurance with an investment component decided by the life insurance company. Many life insurers offer policy owners minimum guaranteed returns on their policies when the insurer controls the investment strategy.

    Variable Universal Life

    Variable universal life insurance policies combine whole of life insurance with an investment portfolio. Like other universal life policies, part of the premium paid is used to buy life insurance cover that provides the policy's death benefit, with the remaining premium invested into a portfolio that can be determined by the policyholder.

    When investment returns are good, a variable universal life policy can be attractive as the cash value portion of the policy rises in line with the portfolio's investment performance. However, in times of significant market declines, these policies may require further premiums to be paid in order to maintain the policy cash value which pays for the life insurance element of the policy. These types of policies though are still bought today but have become less attractive with the introduction of indexed universal life insurance.

    Index Universal Life

    Indexed universal life insurance policies use some of the premium to pay for the life insurance cover element of the contract, with the remaining premium participating in the stock market.

    Policyholders are typically invested in a mix of indices selected by the life insurance company. For example, the S&P 500 and the Hang Seng indices are popular choices for insurers to use. The combined investment returns achieved by each index are used to credit the cash value of the policy.

    Some insurers offer policyholders a minimum guaranteed return each year, which makes indexed universal life insurance an attractive alternative to variable universal life insurance policies.

  • W

    Whole Life Insurance

    Whole of life insurance is a type of permanent life insurance with a guaranteed death benefit. Premiums are either paid in a single lump sum upfront or yearly or monthly depending upon how the life insurance contract is set up.

    The in-built guarantees of whole of life insurance mean it is typically the most expensive type of policy to buy. The premiums are higher to reflect the fact that the insurance company issuing the policy to the individual is carrying all the risk of an eventual payout.

    Some permanent life policies have a cash surrender value, whilst others are designed to never have a cash value.

    Whole Life cash value insurance has a guaranteed cash value that can grow. In addition, there are non-guaranteed reversionary bonuses that are declared every year. Finally, growth in the policy can also benefit from a terminal bonus which is a one-time non-guaranteed bonus paid upon surrender of the policy.

  • V

    Very High Net Worth Individual

    A very high net worth individual (VHNWI) is a person with at least $35000,000 of assets which include cash, bonds, shares but excludes real estate according to Cap Gemini in its World Wealth Report 2020. See also High Net Worth and Ultra High Net Worth

We hope our life insurance glossary of terms has been helpful. Now request a life insurance and premium finance quote for free or talk to a life insurance expert at Capital for Life.

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