Life Insurance Concepts and Regulations

A collection of essential terms and definitions related to life insurance concepts and regulations.

Insurance

A contract in which one party (the insurer) agrees to indemnify the insured against loss or damage from uncertain events.

Beneficiary

The person designated to receive the benefits of an insurance policy upon the death of the insured.

Premium

The amount paid by the insured to the insurance company for coverage under the policy.

Adverse Selection

The tendency of those at higher risk of loss to purchase insurance, potentially leading to increased costs for insurers.

Underwriting

The process of assessing risk and determining the appropriate premium for insurance coverage.

Contingent Beneficiary

A secondary beneficiary who receives benefits if the primary beneficiary is deceased.

Policy Lapse

The termination of an insurance policy due to nonpayment of premiums.

Insurable Interest

The requirement that the policyowner must have a financial interest in the continued life of the insured at the time of application.

Whole Life Insurance

A type of permanent life insurance that provides coverage for the lifetime of the insured and includes a cash value component.

Term Life Insurance

A type of life insurance that provides coverage for a specific period of time and does not accumulate cash value.

Guaranteed Insurability Rider

A policy rider that allows the insured to purchase additional insurance without evidence of insurability at specified times.

Surrender Value

The amount available to the policyowner if they terminate the policy before its maturity or death claim.

MEC (Modified Endowment Contract)

A life insurance policy that has exceeded the maximum allowable premiums under the 7-pay test, resulting in reduced tax advantages.

Conversion Privilege

The option for group life insurance participants to convert their group coverage into an individual policy without proof of insurability.

Viatical Settlement

A financial transaction where a terminally ill person sells their life insurance policy to a third party for immediate payment.

Free Look Provision

A provision that allows the policyowner to review the policy for a specified time and return it for a full refund if not satisfied.

Grace Period

The period after the premium due date during which the policy will remain in force without penalty.

Rider

A provision added to an insurance policy that modifies coverage or benefits.

Net Cash Value

The total cash value available to the policyowner upon surrender of the policy, minus any amounts owed.

Accidental Death Rider

A provision that pays an additional benefit in the event of death by accident.

Dividend Options

Ways in which policy dividends can be utilized, such as cash payment or reduction of premiums.

Settlement Options

Methods of distributing death benefits to beneficiaries, such as lump-sum or installment payments.