Life Insurance & Living Benefits Lexicon
Life insurance can come with unfamiliar terms that make important decisions harder to understand. This lexicon provides clear, plain-English explanations of common life insurance and living benefits terminology so you can better understand your options, ask informed questions, and make more confident decisions.
A
Accelerated Death Benefit (ADB)
What it means: An accelerated death benefit is a life insurance feature or rider that may allow the insured to access a portion of the policy’s deatgh benefit while living after a qualifying event specified in the policy, such as a terminal illness. The amount available, qualifying conditions, and effect on the remaining death benefit depend on the policy.
Why it matters: It can provide access to money during a qualifying serious health event. Using an accelerated benefit generally reduces the amount that remains available to beneficiaries and may affect other policy values or benefits.
Related terms: Living Benefits • Terminal Illness Benefit • Chronic Illness Benefit/Rider • Death Benefit
Activities of Daily Living (ADLs)
What it means: Activities of Daily Living are basic personal-care activities used to evaluate a person’s ability to function independently. Common ADLs include bathing, dressing, eating, toileting, transferring, and continence.
Why it matters: Some long-term care and chronic-illness benefits use the inability to perform a specified number of ADLs as part of their eligibility requirements. The exact requirements are defined by the policy or rider.
Related terms: Chronic Illness Benefit/Rider • Long-Term Care Rider • Living Benefits
Applicant
What it means: The applicant is the person or entity that applies for an insurance policy and provides the information requested on the application. The applicant may also be the proposed insured or policyowner, but those roles are not always the same person.
Why it matters: Information supplied during the application process is used by the insurer to evaluate the request for coverage. Understanding who is applying, who will be insured, and who will own the policy helps prevent confusion during underwriting and policy delivery.
Related terms: Insured • Policyowner • Underwriting • Insurable Interest
B
Beneficiary
What it means: A beneficiary is the person, people, trust, estate, or other eligible entity designated to receive life insurance proceeds when the insured dies, subject to the terms of the policy.
Why it matters: Beneficiary designations determine who is intended to receive the death benefit. They should be reviewed after major life changes and kept consistent with the policyowner’s current intentions.
Related terms: Death Benefit • Insured • Policyowner
C
Cash Value
What it means: Cash value is a value that may build inside certain permanent life insurance policies. Depending on the policy, the owner may be able to access available cash value through withdrawals, surrender, or policy loans, subject to policy provisions.
Why it matters: Cash value can provide flexibility while the policy is in force, but accessing it can reduce policy values or the death benefit and may have tax consequences in some situations. Policy-specific guarantees, charges, and illustrations should be reviewed carefully.
Related terms: Permanent Life Insurance • Policy Loan • Surrender Value • Whole Life Insurance • Universal Life Insurance
Chronic Illness Benefit/Rider
What it means: A chronic illness benefit or rider may provide access to life insurance benefits while the insured is living if the policy’s requirements for chronic illness are met. Eligibility commonly involves limitations in performing Activities of Daily Living or severe cognitive impairment, but definitions and requirements vary by contract.
Why it matters: It may provide financial flexibility when a qualifying chronic illness affects daily living. A chronic illness accelerated benefit should not automatically be assumed to be long-term care insurance; policy provisions and state requirements determine how the coverage is classified and how benefits work.
Related terms: Activities of Daily Living (ADLs) • Accelerated Death Benefit (ADB) • Living Benefits • Long-Term Care Rider
Contestability Period
What it means: The contestability period is the limited period after a life insurance policy takes effect during which an insurer may investigate material statements made in the application when evaluating a claim. State law and the policy govern the applicable period and exceptions.
Why it matters: Accurate and complete application information is important. A material misrepresentation discovered during the contestability period can affect how a claim is handled.
Related terms: Applicant • Evidence of Insurability • Underwriting
Conversion Privilege
What it means: A conversion privilege is a provision in some term life insurance policies that allows eligible coverage to be converted to a permanent life insurance policy within specified limits and time periods, often without new medical underwriting.
Why it matters: It can preserve an option for permanent coverage if health or circumstances change later. Conversion deadlines, eligible products, maximum ages, and other requirements vary by policy.
Related terms: Term Life Insurance • Permanent Life Insurance • Evidence of Insurability
Cost of Insurance (COI)
What it means: Cost of insurance is the charge associated with providing the life insurance protection within certain policies, particularly universal life policies. The charge is generally influenced by factors such as the insured’s age, risk classification, and amount at risk, according to the policy.
Why it matters: COI charges can affect how a policy performs over time. In flexible-premium policies, understanding current and guaranteed charges, funding levels, and policy values is important when evaluating whether coverage is likely to remain in force.
Related terms: Universal Life Insurance • Premium • Risk Classification • Cash Value
D
Death Benefit
What it means: The death benefit is the amount payable under a life insurance policy to the designated beneficiary or beneficiaries when the insured dies, subject to the policy’s terms, exclusions, outstanding loans, and other applicable provisions.
Why it matters: It is the core protection provided by life insurance. The amount ultimately paid can be affected by policy loans, withdrawals, accelerated benefits, or other policy provisions, so the current policy should be reviewed when evaluating coverage.
Related terms: Beneficiary • Face Amount • Accelerated Death Benefit (ADB) • Policy Loan
Dividend
What it means: A dividend is a distribution that may be paid on a participating life insurance policy when declared by the insurer. Dividends are not guaranteed and may generally be taken in cash or used in other ways permitted by the policy, such as reducing premiums or purchasing additional paid-up insurance.
Why it matters: Dividends can add flexibility and value to a participating policy, but they should not be presented as guaranteed future benefits. The available dividend options and their effects should be reviewed with the policy illustration and contract.
Related terms: Paid-Up Additions (PUAs) • Whole Life Insurance • Cash Value • Premium
E
Evidence of Insurability (EOI)
What it means: Evidence of insurability is information an insurer may require to determine whether a person qualifies for requested insurance coverage. Depending on the situation, it may include health questions, medical history, medical records, an examination, or other underwriting information.
Why it matters: EOI is commonly required when someone requests coverage that is not available on a guaranteed basis, such as an increase above a plan’s guaranteed-issue amount. Providing complete and accurate information helps the insurer evaluate eligibility for the requested coverage.
Related terms: Applicant • Guaranteed Insurability Rider • Medical Underwriting • Underwriting
Exclusion
What it means: An exclusion is a policy provision that identifies a circumstance, condition, event, or cause of loss for which the policy does not provide coverage. Exclusions vary by policy and should be reviewed in the actual contract.
Why it matters: Understanding exclusions helps a policyowner know the limits of the coverage being purchased. They are one reason the policy contract—not just a quote, illustration, or summary—should be reviewed carefully.
Related terms: Policyowner • Rider • Death Benefit
F
Face Amount
What it means: The face amount is the amount of life insurance stated in the policy, generally representing the policy’s basic death benefit before considering adjustments that may result from certain riders, policy loans, withdrawals, accelerated benefits, or other policy provisions.
Why it matters: It provides a starting point for understanding how much coverage a policy was designed to provide. The amount ultimately payable at death may differ from the original face amount depending on how the policy has been used and its provisions.
Related terms: Death Benefit • Beneficiary • Policy Loan • Accelerated Death Benefit (ADB)
Financial Underwriting
What it means: Financial underwriting is the insurer’s evaluation of whether the amount of life insurance requested is reasonable in relation to the financial purpose for the coverage. Depending on the case, the insurer may consider income, assets, debts, business interests, existing coverage, and other financial information.
Why it matters: Qualifying medically does not automatically mean that any amount of life insurance will be approved. Financial underwriting helps establish whether the requested coverage is consistent with the economic loss or financial need the insurance is intended to address.
Related terms: Human Life Value (HLV) • Insurable Interest • Underwriting • Face Amount
Free-Look Period
What it means: The free-look period is a limited period after receiving a new life insurance policy during which the policyowner may review the contract and return it if dissatisfied, subject to applicable law and policy requirements. The required period can vary by state and situation.
Why it matters: It gives the policyowner an opportunity to read the actual contract after delivery and confirm that the coverage matches what was expected. In Washington, new life insurance policies generally include a 10-day free-look period.
Related terms: Policyowner • Premium • Policy
G
Grace Period
What it means: A grace period is the period after a premium due date during which an overdue premium may still be paid while coverage generally remains in force, subject to the policy’s terms. The length of the grace period depends on the contract and applicable requirements.
Why it matters: It provides a limited window to correct a missed premium before coverage may lapse. Policyowners should not treat the grace period as a regular payment extension and should review their policy for the exact timing and requirements.
Related terms: Premium • Lapse • Policyowner
Guaranteed Insurability Rider (GIR)
What it means: A guaranteed insurability rider is a policy provision that may allow the policyowner to purchase specified additional life insurance at certain option dates or qualifying events without providing new evidence of insurability, subject to the rider’s limits and conditions.
Why it matters: It can preserve the ability to increase coverage later even if the insured’s health changes. The amount available, option dates, ages, additional premium, and other requirements are defined by the rider.
Related terms: Evidence of Insurability (EOI) • Rider • Insured • Death Benefit
H
Human Life Value (HLV)
What it means: Human Life Value is a planning concept used to estimate the economic value of a person’s future financial contribution to the people who depend on them. In life insurance planning, it can help estimate the amount of future income or economic contribution that could be lost if that person dies prematurely.
Why it matters: Life insurance needs are about more than paying final expenses or outstanding debts. HLV helps shift the discussion toward protecting future earning power and the financial support a person may provide over many years. It is an estimate and should be considered alongside existing assets, liabilities, family needs, goals, and other resources.
Related terms: Financial Underwriting • Face Amount • Death Benefit • Insurable Interest
Related Resource: Human Life Value Calculator
I
Insurable Interest
What it means: Insurable interest is a financial or other recognized interest in the continued life of the person being insured. In life insurance, an insurable interest generally must exist when the policy is issued so the coverage is based on a legitimate relationship or potential financial loss rather than speculation on another person’s death.
Why it matters: It helps establish why one person or entity has a valid reason to insure another person’s life. Common examples can include family relationships, business relationships, or financial obligations, subject to applicable law and insurer requirements.
Related terms: Applicant • Insured • Policyowner • Financial Underwriting
Insured
What it means: The insured is the person whose life is covered by a life insurance policy. The death benefit is generally payable when the insured dies while the policy is in force, subject to the policy’s terms and provisions.
Why it matters: The insured, applicant, policyowner, and beneficiary can be different people or entities. Understanding these roles is important because each has different rights or responsibilities under the policy.
Related terms: Applicant • Policyowner • Beneficiary • Death Benefit
L
Lapse
What it means: A lapse occurs when life insurance coverage ends because required premiums or other policy requirements are not met. A policy may lapse after its grace period expires, although the circumstances that can cause a lapse vary by policy type.
Why it matters: A lapsed policy may leave the insured without the intended protection. Some policies may allow reinstatement if specific requirements are met, but reinstatement is not automatic and may require payment, evidence of insurability, or other conditions.
Related terms: Grace Period • Premium • Evidence of Insurability (EOI) • Policyowner
Life Insurance Rider
What it means: A life insurance rider is an addition or attachment to a policy that modifies its coverage or provisions. Depending on the rider, it may add a benefit, provide an option, limit coverage, or change how part of the policy works.
Why it matters: Riders allow a policy to be tailored for particular needs, but each rider has its own definitions, costs, eligibility requirements, limits, and exclusions. The rider itself should be reviewed rather than assuming similarly named riders work the same way across insurers.
Related terms: Rider • Guaranteed Insurability Rider (GIR) • Waiver of Premium Rider • Long-Term Care Rider
Living Benefits
What it means: Living benefits is a broad term commonly used for life insurance features that may allow an insured to access certain policy benefits while still living after a qualifying event. Examples can include accelerated death benefits for terminal or chronic illness and, in some policies, benefits associated with qualifying long-term care coverage.
Why it matters: These features can make life insurance useful during certain qualifying events as well as at death. However, living benefits are not all the same: qualifying conditions, benefit amounts, costs, tax treatment, and effects on the remaining death benefit vary by policy. In Washington, an accelerated benefit should not be assumed to be long-term care insurance unless it meets the state requirements for LTC coverage.
Related terms: Accelerated Death Benefit (ADB) • Chronic Illness Benefit/Rider • Terminal Illness Benefit • Long-Term Care Rider
Long-Term Care Rider
What it means: A long-term care rider is an addition to a life insurance policy that provides qualifying long-term care benefits under the terms of the rider. Depending on the contract, it may allow part of the life insurance benefit to be used for covered long-term care services when eligibility requirements are met.
Why it matters: It can combine life insurance protection with access to benefits for qualifying long-term care needs. Eligibility, covered services, benefit limits, waiting periods, reimbursement or payment methods, and effects on the remaining death benefit vary by rider. In Washington, not every accelerated or chronic-illness benefit qualifies as long-term care insurance under state law.
Related terms: Activities of Daily Living (ADLs) • Living Benefits • Chronic Illness Benefit/Rider • Accelerated Death Benefit (ADB)
M
Medical Underwriting
What it means: Medical underwriting is the insurer’s evaluation of health-related information to determine whether an applicant qualifies for life insurance and, if so, the appropriate risk classification and premium. Depending on the insurer, product, age, and amount requested, the process may use application answers, prescription history, medical records, laboratory testing, an examination, or other permitted sources of information.
Why it matters: Health history can affect both eligibility and the cost of coverage. Preparing for underwriting and providing complete, accurate information can help the insurer evaluate the application efficiently. Some applicants may qualify for accelerated or simplified processes that require fewer traditional medical requirements.
Related terms: Applicant • Evidence of Insurability (EOI) • Risk Classification • Underwriting
Related Resources: Underwriting / Medical Underwriting
P
Paid-Up Additions (PUAs)
What it means: Paid-up additions are small amounts of additional fully paid-up life insurance that can be purchased within certain participating whole life policies. They generally increase the policy’s death benefit and cash value and may themselves be eligible for future dividends when dividends are declared, subject to the policy’s terms.
Why it matters: PUAs can be an important part of how some participating whole life policies are designed and funded. Their availability, purchase limits, guarantees, dividend treatment, and effect on policy values depend on the specific contract and rider or dividend option.
Related terms: Dividend • Cash Value • Death Benefit • Whole Life Insurance
Permanent Life Insurance
What it means: Permanent life insurance is a broad category of life insurance designed to remain in force for the insured’s lifetime as long as the policy’s requirements are met. Many permanent policies also include a cash-value component. Whole life and universal life are common types of permanent life insurance.
Why it matters: Permanent coverage can address needs that may continue beyond a fixed term, such as lifelong protection, legacy planning, or certain long-term financial objectives. Premium structure, guarantees, cash values, flexibility, and risk differ significantly among permanent policy types.
Related terms: Whole Life Insurance • Universal Life Insurance • Cash Value • Term Life Insurance
Related Resource: Life Insurance Options
Policy Loan
What it means: A policy loan allows the owner of an eligible cash-value life insurance policy to borrow against the policy’s available value, subject to the contract. Interest is charged, and an unpaid loan balance plus accrued interest generally reduces the amount available to beneficiaries if the insured dies.
Why it matters: Policy loans can provide access to policy value without surrendering the policy, but they are not free money. Loans can reduce cash value and death benefits, affect policy performance, and increase the risk of lapse. A lapse or surrender with an outstanding loan may also create tax consequences in some circumstances.
Related terms: Cash Value • Surrender Value • Death Benefit • Lapse
Policyowner
What it means: The policyowner is the person or entity that owns the life insurance contract and holds the contractual rights associated with the policy. Depending on the contract, those rights can include naming or changing beneficiaries, selecting certain policy options, accessing available cash value, assigning ownership rights, and making other permitted changes.
Why it matters: The policyowner controls important policy decisions and does not have to be the same person as the insured. Understanding ownership is especially important when coverage involves spouses, family members, trusts, businesses, or other third parties.
Related terms: Insured • Beneficiary • Applicant • Policy Loan
Premium
What it means: A premium is the amount paid to an insurance company for coverage under an insurance policy. Life insurance premiums may be structured in different ways depending on the product, including level scheduled premiums or more flexible payment arrangements.
Why it matters: Paying the required premium or otherwise maintaining sufficient policy value is essential to keeping coverage in force. Premium amounts and payment flexibility can differ substantially among term, whole life, and universal life policies, so the policy’s guarantees and funding requirements should be understood.
Related terms: Grace Period • Lapse • Term Life Insurance • Whole Life Insurance • Universal Life Insurance
R
Rating / Risk Classification
What it means: A rating or risk classification is the category an insurer assigns after evaluating an applicant’s risk characteristics during underwriting. The classification helps determine whether coverage can be offered and the premium required. Insurers may use classifications such as preferred, standard, or other rated categories, but names and criteria vary by company.
Why it matters: Two people applying for similar coverage may receive different premiums because underwriting considers individual risk factors. A risk classification reflects the insurer’s assessment under its underwriting guidelines; it is not a general judgment about a person’s overall health.
Related terms: Underwriting • Medical Underwriting • Standard Risk • Premium
Rider
What it means: A rider is an addition or amendment to an insurance policy that changes, adds to, or limits the policy’s coverage or provisions. Some riders are included with a policy, while others may require an additional premium.
Why it matters: Riders can significantly affect how a life insurance policy works. Because similarly named riders can have different definitions, eligibility requirements, costs, exclusions, and benefit limits, the actual rider provisions should be reviewed carefully.
Related terms: Life Insurance Rider • Waiver of Premium Rider • Guaranteed Insurability Rider (GIR) • Long-Term Care Rider
Related Resources: Life Insurance Riders
S
Standard Risk
What it means: Standard risk is a life insurance underwriting classification generally used for an applicant who meets an insurer’s standard guidelines for the requested coverage. The exact health, lifestyle, occupational, and other criteria used to determine a standard classification vary by insurer.
Why it matters: A standard classification generally means coverage can be offered at the insurer’s standard rate for that product and applicant profile. Applicants with more favorable risk characteristics may qualify for preferred classes, while higher-risk applicants may receive a different rating or premium.
Related terms: Rating / Risk Classification • Underwriting • Medical Underwriting • Premium
Surrender Value
What it means: Surrender value is the amount a policyowner may receive if an eligible cash-value life insurance policy is voluntarily terminated or surrendered. The amount available can reflect the policy’s cash value after applicable surrender charges, outstanding policy loans, accrued loan interest, and other contract adjustments.
Why it matters: Surrendering a policy ends the life insurance coverage and may produce an amount different from the policy’s stated cash value. Surrender can also have tax consequences in some circumstances, so the current policy values and potential effects should be reviewed before making a decision.
Related terms: Cash Value • Policy Loan • Policyowner • Permanent Life Insurance
T
Term Life Insurance
What it means: Term life insurance provides life insurance protection for a specified period, or term. If the insured dies while the coverage is in force, the policy generally pays the applicable death benefit to the beneficiary, subject to the policy’s terms. Most term insurance does not build cash value.
Why it matters: Term insurance can provide substantial death-benefit protection for a defined period and is often used for needs such as income replacement, mortgages, family protection, or other time-limited obligations. Renewal, conversion options, premiums, and maximum coverage ages vary by policy.
Related terms: Death Benefit • Beneficiary • Conversion Privilege • Permanent Life Insurance
Related Resource: Life Insurance Options
Terminal Illness Benefit
What it means: A terminal illness benefit is a type of accelerated death benefit that may allow an insured diagnosed with a qualifying terminal illness to access a portion of the policy’s death benefit while living. The policy or rider defines the qualifying condition, required medical certification, amount available, and other provisions.
Why it matters: It may provide access to funds during a qualifying terminal illness, when financial needs can be significant. Accelerating part of the death benefit generally reduces the amount remaining for beneficiaries and may affect other policy values or benefits.
Related terms: Accelerated Death Benefit (ADB) • Living Benefits • Death Benefit • Beneficiary
U
Underwriting
What it means: Underwriting is the process an insurance company uses to evaluate an application, assess risk, determine whether coverage can be offered, and establish the appropriate classification and premium. Life insurance underwriting may consider health, medical history, age, lifestyle, occupation, finances, and other permitted factors relevant to the coverage requested.
Why it matters: Underwriting determines more than whether an application is approved. It can also affect the amount of coverage offered, risk classification, premium, and policy terms. Preparing before applying can help identify potential underwriting concerns and ensure the application is complete and accurate.
Related terms: Medical Underwriting • Financial Underwriting • Rating / Risk Classification • Applicant
Universal Life Insurance
What it means: Universal life insurance is a type of permanent life insurance that generally combines life insurance protection with a policy account or cash value and offers flexibility in premium payments and, within policy limits, death-benefit options. Interest credits, insurance costs, expenses, guarantees, and other provisions are defined by the contract.
Why it matters: Flexibility does not eliminate the need to monitor the policy. Changes in premiums paid, credited interest, insurance costs, withdrawals, loans, or other policy factors can affect cash value and how long coverage remains in force. Current values and guaranteed assumptions should be reviewed periodically.
Related terms: Permanent Life Insurance • Cash Value • Cost of Insurance (COI) • Premium • Whole Life Insurance
W
Waiver of Premium Rider
What it means: A waiver of premium rider may waive required life insurance premiums if the insured meets the rider’s definition of a qualifying disability or other covered condition. Eligibility, waiting periods, age limits, exclusions, and the duration of the waiver are determined by the rider.
Why it matters: A qualifying disability can make continuing insurance premiums more difficult. This rider may help keep coverage in force during a covered period without requiring the insured to make the premiums that are waived under the rider’s terms.
Related terms: Rider • Premium • Insured • Life Insurance Rider
Whole Life Insurance
What it means: Whole life insurance is a type of permanent life insurance designed to provide coverage for the insured’s lifetime when required premiums and policy conditions are met. Traditional whole life policies generally provide scheduled premiums, a death benefit, and guaranteed cash values according to the contract. Participating whole life policies may also be eligible for dividends, which are not guaranteed.
Why it matters: Whole life can provide lifelong protection and predictable contractual guarantees, but premiums are generally higher than comparable term coverage. Policy design, payment periods, dividend options, paid-up additions, loans, and other features can affect how the policy performs over time.
Related terms: Permanent Life Insurance • Cash Value • Dividend • Paid-Up Additions (PUAs) • Term Life Insurance
Still Have a Question?
Insurance terms can be easier to understand when they’re applied to your individual situation. If something in the Lexicon raises a question about your coverage, options, or next steps, Dan Prescott Agency is here to help you understand it clearly.
Disclaimer: This lexicon is provided for general educational purposes only. Insurance terminology, benefits, eligibility requirements, underwriting standards, policy provisions, and availability can vary by insurer, product, and jurisdiction. Always refer to the applicable policy, rider, carrier materials, and current state requirements for complete details.