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In order to evaluate a life insurance policy, it is vital to understand the meaning of the terms used. This article describes the terms you are most likely to run into such as:

If you have life insurance, either on your own or through an employer, do what you can to maintain the premiums. If you don't have life insurance, you may still be able to purchase it.

NOTE: For a glossary of words relating to:

The Insured

The person on whose life a life insurance policy is issued.

The insured does not have to be the owner of the policy.

The Owner

The owner of a life insurance policy is the person who purchases a life insurance policy.

The owner:

  • Has the right to name the beneficiary,
  • Is the person who can deal with the insurer about the policy in all respects, including requesting an accelerated death benefit .
  • Has the right to cancel the policy.

The owner and insured are usually the same person when it comes to individual life insurance, but they don't have to be.

In a group policy, the group (such as employer) is the owner of the policy -- even though the insured gets the right to name the beneficiary.


The amount of money it costs to purchase insurance.

Premiums can be payable monthly, quarterly, semi-annually or annually. Some policies are "single issue premium" policies, which means you only pay one premium.

Death Benefit

Essentially, the death benefit is the sum that will be paid to the beneficiary(ies) in the event of the insured's death.

The death benefit in a policy can change.

  • There are life insurance policies with a decreasing amount of death benefit. The amount of the death benefit decreases as does the amount of the debt. These policies are often used to insure people who have debt which decreases over time, such as mortgages.
  • There are policies with increasing death benefits.
  • There are also policies with a death benefit that varies with a standard, such as the Dow Jones Industrial Average.

Face Value

The face value is the specified amount for which the policy was issued. The term “face value” is often the same as the term “death benefit,” though the values of each may not be equal in some policies, depending on other features of the coverage.

Note that the face value of a policy can change, for example, with an increasing or decreasing term policy.


The beneficiary of a life insurance policy is the individual, or individuals who will receive the death benefit of the policy in the event of your death.

There can be more than one beneficiary. Beneficiaries who will split the proceeds are called "joint beneficiaries." Beneficiaries can also be:

You can generally leave different amounts of money to different beneficiaries. If you list several beneficiaries to a policy, but do not state the amount each gets, the usual presumption is that they share equally. It is better to state who gets what percentage -- as well as what happens if one of the beneficiaries dies before you.

Make sure that the named beneficiary on each of your life insurance policies is who you actually would like to receive the proceeds of the policy in the event of your death today. Remember, we can all get hit by a bus crossing the street.

If you don't name a beneficiary, some policies will pay the proceeds according to a specified order. For example, the policy may pay benefits first to a spouse first, then children, parents, etc. Otherwise, if the proceeds are claimed at all, they may be paid to your estate, and then distributed according to the provisions of your Will. If you do not have a Will, they will be distributed according to the rules of probate in your state.

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Insurability is a general term for whether a life insurance company will issue a policy or reject you as being too much of a risk.

While you may not be considered to be insurable by one life insurance company, you may still be considered to be insurable by another one. It all depends on the criteria the particular company uses.

Guaranteed Issue

Guaranteed issue means that when you apply for a life insurance policy:

  • The company guarantees to issue the policy -- no matter your health history or current health condition.
  • There is no medical exam.

With guaranteed issue individual policies, the insurer generally requires that you answer a few questions, such as your age and whether you have been hospitalized in the past 6 months.

In order to protect the life insurance company against people purchasing a policy on their death bed, guaranteed issue policies generally have provisions which say that if the insured dies within the first two years:

  • Instead of the full death benefit, the beneficiary will only receive a return of premiums paid plus a healthy rate of interest or
  • The death benefit starts low and does not grow to the maximum amount until the end of two years form the date of issue.

In a sense, group policies are "guaranteed issue" policies because no health questions are asked when you sign up. There may be a waiting period during which a pre-existing condition is not covered for a period of time, such as for 12 months.

Simplified Issue

Simplified issue life insurance policies are those which ask a few simple questions – such as your age, or whether you’ve been hospitalized in the last six months, do you have HIV/AIDS. If the insurance company considers the answers to be appropriate, the policy is issued. No medical examination is required.

Check the policy to see if death due to a pre-existing condition is not covered for a period of time from the issuance of the policy.

Guaranteed Insurability Rider

A Guaranteed Insurability Rider provides that at certain times specified in the policy, the insured is permitted to increase the amount of the death benefit without having to prove that the insured is insurable at the time of the increase.

For example, if you own a $100,000 policy with a guaranteed insurability rider, it may provide that at the end of 5 years you have the option to increase the death benefit by an additional $25,000 without evidence of insurability.

There are generally no restrictions on this payment so beneficiaries receive the additional $25,000 even if the insured was diagnosed with a serious health conditoin the day before increasing the death benefit.

Cash Value

Cash value is a savings feature that accumulates money over time.

Basically, if your policy has a cash value provision, what you contribute in premiums pays more than the cost of the insurance. The insurance company invests and accumulates that difference, which you may be able to borrow against at a pre-set rate of interest.

Cash values are generally found in permanent type policies. They are rare in group policies.

Cash Surrender Value

The cash surrender value is the amount of cash you would receive if you voluntarily surrendered (cancelled) a life insurance policy.

Generally the amount equals the accumulated cash value in the policy at the time of surrender, minus a specified surrender charge which is an amount usually stipulated in the policy itself. Cash surrender value is not a feature of policies that do not accumulate cash value (see above.)

Note: If you are considering surrendering a policy because you no longer need it or can no longer keep paying the premiums, be sure to see:

Contestability/Constestable Period

You will generally find a contestable period in individual policies and group policies which ask medical questions.

The contestable period refers to an initial period starting with the date of issue of the policy during which the insurance company can contest the validity of the policy. During a contestable period, a life insurance company only has to prove that a fact in the application was wrong. In general, in this case, intent does not matter. For example, if you were required to provide medical information in order to obtain the insurance and you lied on about your medical condition on the application: the insurance company can cancel the policy if it discovers the lie during the contestable period.

Contestable periods are generally applicable for two years from the date of issue. Contestable periods may also be applicable for an additional two years:

  • From the date that you reinstate coverage that lapsed because you didn't pay the premium on time or
  • From the date that you convert coverage, say from group to individual. Some states prohibit an insurance company from restarting the contestable period as a result of a conversion, though they do permit continuation of any remaining time that had not yet passed from the date of issue of the original policy.

In theory, an insurance company cannot contest the validity of a life insurance policy after the contestable period ends. We say "in theory" because in some states the insurance company can argue that there was fraud, which means there never was an agreement at all. In the states which allow this argument, the insurance company must prove that a fact was wrong and that there was an intent to deceive. This can be very difficult when the person whose intent is being questions is no longer with us.

Suicide Exclusion

A suicide exclusion provision helps prevent people from purchasing a life insurance policy with the intention of committing suicide and leaving their heirs a batch of money.

The suicide exclusion allows the insurance company to refuse to pay the death benefit if the insured commits suicide during a specified period of time -- generally for two years beginning on the date of the issue of the policy (the same time period that the contestable periods run.)

After the specified period, death by suicide is covered.

For example, if the insured commits suicide one day before the two year period ends, the beneficiary will only receive a return of premiums paid instead of the death benefit. If the suicide occurs one day after the end of the suicide exclusion period, the beneficiary would be paid the full death benefit.

Accidental Death And Dismemberment

Accidental Death and Dismemberment is a feature of some life insurance policies that provides if you die due to an accident, the policy pays two times the death benefit to your beneficiary.

Disability Waiver Of Premium Provision

A disability waiver of premium provision provides that a life insurance policy in effect without your having to pay any further premiums in the event you become disabled.

What qualifies for “disability” depends on the wording in the particular life insurance policy.

Disability waiver of premium provisions can exist in both individual and group life insurance policies.

Premiums are not waived automatically if you become disabled. You must apply for the waiver.

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Accelerated Death Benefit/Living Benefit

An accelerated death benefit (also known as a "living benefit") provides for payment of all or a portion of the death benefit to a living insured who has a shortened life expectancy as a result of a medical diagnosis.

The amount of the payout varies from company to company.

So does the amount of time the insured is expected to live.

An accelerated death benefit can be an important source of cash while you're alive.