Common Terms & Definitions
Accelerated Death Benefit – A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of a terminal illness. This is in lieu of a traditional policy that pays beneficiaries after the insured’s death. Such benefits kick in if the insured becomes terminally ill, needs extreme medical intervention, or must reside in a nursing home. The payments made while the insured is living are deducted from any death benefits paid to beneficiaries.
Annuity – A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of annuities: deferred and immediate. Deferred annuities allow assets to grow tax-deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase.
Convertible Term Insurance Policy – A term life insurance policy that gives the policy owner the right to convert the policy to a permanent plan of insurance.
Critical Illness Insurance – A type of individual health insurance that pays a lump-sum benefit when the insured is diagnosed with a specified illness. Also known as critical diagnosis insurance. Contrast with specified disease coverage.
Death Benefit – (1) For a life insurance contract, the amount of money paid by an insurer to a beneficiary when a person insured under the life insurance policy dies. (2) For an annuity contract, the amount of money paid to a beneficiary if the contract owner dies before the annuity payments begin.
Decreasing Term Life Insurance – Term life insurance that provides a death benefit that decreases in amount over the policy term. Contrast with increasing term life insurance.
Face Amount – For a fixed-amount whole life insurance policy, the amount of the death benefit payable if the insured person dies while the policy is in force.
Flexible Premium – A premium payment method sometimes offered in connection with annuities and with some types of life insurance that allows the contract owner or policy owner to alter the amount and the frequency of payments, within specified boundaries defined by the insurer and the law.
Fratrernal Insurer – A nonprofit organization that is operated solely for the benefit of its members and that provides its members with social and insurance benefits. Also known as fraternal benefit society.
Free-look Period – A period of up to one month during which the purchaser of an annuity can cancel the contract with no penalty. Rules vary by state.
Incontestability Provision – A period of up to one month during which the purchaser of an annuity can cancel the contract with no penalty. Rules vary by state.
Irrevocable Beneficiary – A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the beneficiary’s consent. Contrast with revocable beneficiary.
Misrepresentation – A false or misleading statement. (1) In insurance sales, a false or misleading statement made by a sales agent to induce a customer to purchase insurance is a prohibited sales practice. (2) In insurance underwriting, a false or misleading statement by an insurance applicant may provide a basis for the insurer to avoid the policy.