Life Insurance State Exam #1, 1-174 Terminology Xcel solutions By-Stephen Atsriku :)

Nonparticipating Policy

A type of life insurance policy that does not pay dividends to the policyholder. The insurer retains any surplus earnings instead of distributing them. e.g. A person with a nonparticipating whole life policy pays a fixed premium and receives a guaranteed death benefit, but will not receive any dividends, even if the insurance company earns profits.

McCarran Ferguson Act

A U.S. federal law that allows individual states to regulate insurance, saying that federal law will not interfere, unless the state is not regulating it. Producer cannot obtain personal client info without legitimate reason. e.g. Obtaining private info on a client without legitimate reason to do so under this act has a minimum penalty of $10,000.

Fair credit Reporting Act

Federal law that regulates how consumer credit information is collected, shared, and used. Producer cannot obtain consumer client credit info without legitimate reason. e.g. The maximum penalty imposed on a producer who has obtained consumer information reports under false pretenses under this law is $5,000.

The Do not Call Registry

A federal list DNC managed by the Federal Trade Commission (FTC) that allows consumers to opt out of telemarketing calls. e.g. Once a number like yours is registered there, your number is exempt from calls like insurance sales calls but not - political organizations, surveys, and charities.

4 Key components of a life insurance policy

• Agreement – offer and acceptance of the insurance contract
• Consideration – payment of premium for coverage
• Competent Parties – both insurer and insured must be legally capable
• Legal Purpose – contract must be lawful (no fraud or crime)

Dividend

A return of excess premium paid by the insurer to the policyholder of a participating life insurance policy. Possible bonus payments some insurers give if they’ve had a good financial year. "Interest on accumulations is taxed". If the dividends exceed the total premium payments for the insurance policy, the excess dividends are considered taxable income. Dividends are typically paid annually and may be taken in cash, used to reduce premiums, left to accumulate interest, or used to buy additional insurance. e.g. A policyholder receives a $200 dividend from their whole life insurance policy due to the insurer’s surplus profits that year. They choose to use it to purchase additional paid-up insurance.

Investigative Consumer Report

A detailed report used in insurance underwriting that includes a consumer’s character, habits, reputation, and lifestyle, usually gathered through interviews. e.g. Used to assess risk before issuing a policy.

Pure Risk

A type of risk where the only possible outcome is loss or no loss—never a gain. It’s insurable because it involves predictable hazards like injury, theft, or property damage. e.g. A homeowner faces pure risk of loss if their house burns down, but not when gambling since gambling involves potential gain (speculative risk).

Speculative Risk

A type of risk that involves the possibility of either loss or gain. It is not insurable because outcomes are uncertain and can result in profit as well as loss. e.g. Investing in the stock market or gambling at a casino—both have chances to win (gain) or lose (loss).

Law of Large Numbers

A principle used by insurance companies to predict future losses by analyzing data from a large group of similar exposure units (like individuals or properties). As the size of the group increases, the accuracy of predicting average losses improves. This principle helps insurers calculate premiums, assess risk exposure, and is used alongside risk pooling to determine how much risk the insurer is taking on. e.g. An insurance company that insures 10,000 similar policyholders can predict that about 100 might file claims in a year, even if they can’t know exactly who. This allows them to set appropriate premiums and prepare for expected payouts.

Peril

A specific event or circumstance that directly causes a financial loss or damage. It is the cause of a loss in insurance terms. Examples of perils include fire, flooding, hailstorms, tornadoes, hurricanes, auto accidents, or a home accident such as falling. e.g. A house catching fire or getting damaged in a hurricane are both perils that insurance may cover.

Hazard

A condition or situation that increases the probability of a loss. e.g. An icy sidewalk increases the chance of someone slipping and getting hurt.

Risk Sharing

A method of managing risk where multiple individuals or entities agree to pool resources to cover potential losses. Each party assumes a portion of the risk, thereby reducing the financial burden on any one member. e.g. Doctors pooling their money together to cover malpractice exposures is an example of risk sharing.

Risk avoidance

A risk management technique that seeks to eliminate any possibility of risk by preventing hazards or discontinuing activities that involve any level of risk. e.g. Choosing not to invest in the stock market to avoid the risk of losing money.

Risk Pooling

The principle of combining the risks of many individuals into a single group to make losses more predictable for insurers. It works alongside the Law of Large Numbers to calculate exposure and determine premiums. By spreading individual risks across a larger pool, insurance companies can minimize the financial impact of high-cost claims. e.g. Health insurers collect premiums from a large number of policyholders, allowing the funds to cover the few who require expensive care.

Risk Transference

A risk management strategy where financial responsibility for a potential loss is shifted from one party to another, usually through insurance. Instead of retaining the risk, individuals or businesses pay a premium to transfer the risk to an insurer who assumes the obligation to cover losses. e.g. Buying an auto insurance policy transfers the financial risk of an accident from the car owner to the insurance company.

Risk Selection

The process insurers use to evaluate and choose which applicants to insure and under what terms, based on risk factors like age, health, and lifestyle. e.g. An insurer may approve a healthy non-smoker for coverage but deny someone with a serious illness.

Risk assumption

When an individual or business accepts the financial responsibility for potential losses instead of transferring the risk to an insurer. e.g. Choosing not to buy insurance for a minor risk—like losing a low-cost phone—and agreeing to cover the cost yourself if something happens.

Loss Exposure

The potential for an individual or business to experience a financial loss due to a covered event like death, illness, property damage, or liability. e.g. A person driving a car has a loss exposure to accidents, theft, or injury—events that could result in financial loss.

Risk Retention

The strategy of accepting and keeping financial responsibility for potential losses instead of transferring them to an insurer. This often occurs when risks are minor or insurance is unavailable or too costly. e.g. Choosing a high deductible health plan or not purchasing insurance for a low-value item means the individual retains the risk and pays out-of-pocket if a loss occurs.

Preexisting Conditions

Medical illnesses or injuries that a person had before obtaining a new health or life insurance policy. Insurers may limit or exclude coverage for such conditions during an initial period. e.g. Someone with diagnosed asthma applying for life insurance might face higher premiums or limited coverage related to respiratory issues.

Acceptance

The act of agreeing to the terms of an insurance contract, usually by the insurer issuing the policy after receiving a valid application and premium payment. e.g. Once the insurer reviews and approves an applicant’s information and receives the first premium, coverage begins through acceptance.

Offer

A proposal made by the applicant to purchase insurance, typically by submitting a completed application and initial premium. The offer is the first step in forming a binding contract. e.g. When someone applies for a life insurance policy and submits their first premium payment, they are making an offer for coverage.

Purpose

The reason an insurance contract exists — to provide financial protection or reimbursement in the event of a covered loss. It helps ensure coverage meets a legitimate need and is not for speculation. e.g. Buying life insurance to protect your family’s financial future if you die is a valid purpose.

Consideration

The value exchanged in an insurance contract that shows each party is giving something in return. e.g. The insured pays a premium; the insurer promises to cover future losses.

Express authority

Power given explicitly to an agent by the insurer through a written contract to act on its behalf. The principal gives the agent authority in writing. e.g. A producer is given express authority to bind coverage and collect premiums under a written agreement.

Implied Authority

Unwritten authority an agent is assumed to have in order to perform acts necessary to conduct business, even if not explicitly stated in the contract. e.g. A producer accepting premium payments, though not directly mentioned in their contract.

Apparent Authority

The authority a third party reasonably believes an agent has, based on the agent’s actions, words, or conduct—even if the authority wasn’t formally granted. e.g. A producer routinely collecting premiums and issuing receipts may appear authorized to do so, even if not explicitly stated in the contract.

Aleatory

Is a term that describes the fact that both parties of a contract may NOT receive the same value. e.g. A person pays $50/month for health insurance. If they get injured, the insurer might pay $50,000 in benefits. If not, they receive no payout.

Representation

A statement made by an applicant in an insurance application that is believed to be true to the best of their knowledge, such as info about health history, occupation, or hobbies. If later found false or misleading, it can affect the validity of the policy. e.g If someone says they’ve never smoked but actually do, that misrepresentation can lead to denial of claims or cancellation of the policy.

Unilateral Contract

A type of insurance contract where only the insurer makes a legally enforceable promise. The insurer is required to pay claims if the insured meets policy conditions, but the insured is not legally obligated to pay premiums—though the insurer can cancel coverage if they don’t. e.g. A person pays for health insurance; the insurer must pay benefits if the person gets injured, but the person isn’t forced to keep paying.

Insurable Interest

The financial risk of loss for the insurer if the insured dies. e.g. Can exist between close relations like parent-child, siblings, or business partners—not occur between a business owner and their client.

Errors and Omissions

A professional liability that allows producers to be sued for mistakes made when putting a policy into effect — e.g. forgetting to submit an application or entering wrong data.

Fiduciary Trust

A legal relationship where a trustee (fiduciary) manages assets for a beneficiary. e.g. A grandmother sets up a trust for her grandson, and names a bank as trustee to manage the funds until he turns 25.

Fiduciary

A person (e.g., insurance agent) who has a legal and ethical duty to act in the best interest of another (e.g., policyowner).

Concealment

The intentional failure to disclose relevant information on an insurance application, which may affect the insurer’s decision to provide coverage. e.g. An applicant fails to mention a recent cancer diagnosis when applying for life insurance. This concealment could lead to denial of future claims or cancellation of the policy.

Estoppel

A legal principle that prevents a person from denying something they previously stated or agreed to. e.g If an insurer overlooks incorrect info on an application and still issues a policy, they may be estopped from denying a claim later based on that info.

Misrepresentation

A false or misleading statement made by an applicant or policyholder on application that can affect the insurer’s decision to issue or maintain coverage. Misrepresentations can be intentional or unintentional. e.g. An applicant lies about a pre-existing health condition on the life insurance application to obtain a lower premium. If discovered, the insurer may deny a claim or cancel the policy.

Adhesion

A type of contract where one party sets the terms, and the other must accept or reject (no negotiation). e.g. A person applying for health insurance must accept the insurer’s policy terms as written or walk away—no changes or negotiations allowed.

Reciprocal insurer

An unincorporated group of individuals or businesses that agree to insure one another by exchanging insurance contracts, with administration handled by an attorney-in-fact. Each member (subscriber) is both an insurer and an insured. e.g. A group of physicians form a reciprocal insurance exchange to provide malpractice coverage for each other, managed by a designated attorney-in-fact.

Conservation

The insurer’s effort to keep a life insurance policy from lapsing or being surrendered (policy cancelation), often by offering changes like reduced premiums or coverage. e.g. An agent persuades a client not to cancel a whole life policy by converting it to paid-up insurance.

Reciprocity

A mutual agreement between states to accept each other’s insurance licensing requirements, simplifying the licensing process for producers across states. e.g. A producer licensed in Texas can get licensed in Florida without retaking exams, thanks to a reciprocity agreement.

Contract of Adhesion

A contract drafted by one party (usually the insurer) and offered to the other party (the applicant) on a “take it or leave it” basis, with no negotiation. e.g. An insurance policy presented to a customer without allowing changes to the terms.

Insurance Carrier

A company that underwrites and issues insurance policies and assumes the risk. They are responsible for assembling the policy forms for insureds. e.g. Transamerica or Prudential issuing a life insurance policy.

NAIC (National Association of Insurance Commissioners)

A regulatory support organization that helps standardize insurance laws and regulations across U.S. states. e.g. NAIC creates model laws that states may adopt to regulate insurance practices

Countersignature

A licensed agent’s signature on an insurance policy, required in some states to validate the contract. It’s NOT an element of a valid contract for all states. e.g. An agent in New Jersey signs a life insurance policy before it is issued to the client.

Competent Parties

2 or more people or entities that are legally capable of entering into a binding contract. This means they are of legal age and mentally sound. e.g. A 30-year-old person buying life insurance for themselves, and the life insurance producer that they interact with.

Intent

The clear purpose or objective of a person entering into a contract, such as the intent to purchase life insurance to provide financial protection. e.g. A person applies for life insurance with the intent to protect their family from financial loss in the event of their death

Adhesion Clause

A provision (statement), section or indication that confirms the policy is a “take-it-or-leave-it” contract, meaning the insurer writes the terms and the insured must accept them as is. e.g. The insured cannot negotiate or modify policy terms.

Contestability Clause

A clause allowing the insurer to void the contract within a set period (usually 2 years) if material misrepresentation is found in the application. e.g. If the insured lied about health history, the insurer can cancel coverage within 2 years.

Consideration Clause

A clause that defines the exchange of value in the contract — the insurer promises to pay a benefit, and the insured pays premiums. e.g. The insured’s consideration is the application and premium payment.

Premium Clause

A clause that specifies the amount, frequency, and method of premium payments. e.g. The policyholder must pay monthly premiums by the due date to keep the policy active.

Underwriting

The process an insurance company uses to evaluate the risk of insuring a person and determine the premium. e.g. Reviewing an applicant’s age, health, and lifestyle.

Legal reserve

The amount of money an insurer is required by law to set aside to pay future claims. e.g. Funds held to cover expected death benefits on life insurance policies.

Issuance of a policy

The formal delivery of an insurance contract to the policyowner after underwriting approval and premium payment. e.g. Handing over a life insurance policy after final approval.

Promises Made

Statements of commitment by one party to fulfill a specific action or duty in an insurance contract. These are legally binding and typically made by the insurer to the insured. e.g. The insurer promises to pay a death benefit upon the insured’s death, as long as premiums are paid and policy terms are met.

Claim Forms

Documents used to request benefits or payment from an insurance policy after a covered event occurs. The insured or beneficiary must complete and submit these to the insurer. e.g. A beneficiary submits a claim form along with a death certificate to receive the life insurance payout.

Universal Life Insurance

A flexible permanent life insurance policy that combines a death benefit with a savings component that earns interest that can be paid out in a claim. Premium payments cannot be used for Separate account investments. It is subject to a contract interest rate or a current annual interest rate. Has a flexible premium schedule. e.g. A policy that allows you to adjust your premium and death benefit over time.

Term Life Insurance

A life insurance policy that provides coverage for a specified period (term) with no cash value. e.g. A 20-year term policy that pays out if the insured dies within that time.

Adjustable Life Insurance

A hybrid life insurance policy that allows the policyholder to adjust the coverage, premium, and type (term or whole life). A nonforfeiture option (cannot) be used to increase the death benefit. e.g. Switching from high coverage and low savings to lower coverage with higher savings. Or changing 2 policy features, like premium, and face amount.

Group Life Insurance

Life insurance coverage provided to a group of people under a single contract, usually through an employer. e.g. An employer offers all full-time employees $50,000 in life insurance.

Survivorship Life Insurance

A type of life insurance policy that insures two people and pays out the death benefit only after both insured individuals have died. Coverage of two or more individuals with the death benefit payable upon the last person's death is a feature of last survivor insurance. e.g. Often used in estate planning for married couples.

Joint Life Insurance H

A life insurance policy that covers two people, but pays the death benefit upon the first person’s death. e.g. Helps provide for the surviving spouse’s financial needs immediately after the other passes.

Whole Life Insurance

A permanent life insurance policy that provides coverage for the insured’s entire lifetime with fixed premiums and a guaranteed death benefit. If surrendered, income taxes may be owed e.g. Builds cash value over time that can be borrowed against.

Endowment Life insurance

A life insurance contract that pays out a lump sum either after a set period or upon the insured’s death, whichever comes first. e.g. Often used to save for a child’s college fund or retirement.

Modified Endowment Contract (MEC)

A life insurance contract which accumulates cash values higher than the IRS will allow. e.g. If a policy becomes a MEC, taking money out early can result in ordinary income tax and a 10% penalty. e.g. A whole life policy might let you borrow against your cash value after several years.

Cash value

The savings component of a permanent life insurance policy that builds up over time from a portion of your premium payments. e.g. A whole life policy might let you borrow against your cash value after several years. taking a loan from the insurance company, using the amount you’ve accumulated as collateral.

Renewable Term Life insurance policy

A term life insurance policy that can be renewed at the end of the term without a medical exam. Policy can be renewed to a predetermined date or age, regardless of the insured's health status. e.g. A 10-year term policy renewed for another 10 years without reapplying.

Single premium cash value policy

A policy that is paid up upfront after only one premium payment. e.g. A client pays $50,000 once to fully fund a whole life policy with accumulating cash value.

Family Term Rider

An optional life insurance policy add-on that provides term life coverage for the insured’s spouse and/or children under one contract. e.g. A policyholder adds a family term rider to cover their spouse for $50,000 and each child for $10,000.

Dependent Term

A rider or provision that provides term life insurance coverage for a dependent, such as a spouse or child, under the insured’s policy. e.g. A parent adds a dependent term rider to cover their child for $10,000 in term life insurance.

Guaranteed Insurability Rider

A policy feature that allows the insured to purchase additional coverage at specified intervals without proof of insurability. With this feature one can purchase additional Whole Life coverage at future dates specified in the contract with no evidence of insurability required. e.g. A policyholder exercises the guaranteed insurability option at age 30 to increase their coverage without undergoing a medical exam.

Level Premium Permanent Insurance

A type of life insurance where the premium remains the same throughout the life of the policy and the coverage is permanent (typically until death). Accumulates a reserve that will eventually equal the face amount of the policy. Reserve is another word for cash value, face amount is death benefit. e.g.: A whole life policy where the insured pays $100/month from age 30 until death.

Death benefit

The amount of money paid to the beneficiary when the insured person dies. The beneficiary would have to submit a claims form, and provide a certificate of death. e.g. A $250,000 death benefit is paid to a spouse after the policyholder passes away.

Total Premium Paid

The cumulative amount of money a policyholder has paid or is obligated to pay into the policy over its lifetime. This includes all recurring premium payments (monthly, quarterly, annually, etc.) that are scheduled for the full term of the policy. e.g. If a policy requires $100/month for 20 years, then even if the policyholder has only paid for 5 years so far, the total premium over time would amount to $24,000. What’s been paid already is $6,000 — but the total premium expected is $24,000

Fixed Death Benefit

A life insurance policy feature where the amount paid to the beneficiary upon the insured’s death remains the same throughout the life of the policy. e.g. A $250,000 whole life policy will always pay $250,000 when the insured dies, regardless of how long the policy was held.

Fixed Cash Value

A permanent life insurance policy feature where the cash value grows at a guaranteed, unchanging rate as specified in the policy. e.g. A whole life policy might guarantee the cash value will grow by $500 per year regardless of market performance.

Policy Loan

A loan issued by the insurance company to the policyholder using the cash value of a permanent life insurance policy as collateral. e.g. A policyholder with $10,000 in cash value may borrow $5,000 from the insurer and repay it over time with interest.

Non-renewable level term life policy

A term life insurance policy that provides a fixed death benefit and level premiums for a set period but cannot be renewed once the term ends. e.g. A 10-year non-renewable term policy expires after 10 years, and the insured must apply for a new policy if continued coverage is desired.

Policy Inception

The official start date of an insurance policy when coverage begins. e.g. If a life insurance policy is approved and starts on March 1, 2025, that date is the policy inception.

Standard Whole Life Policy

A type of permanent life insurance that provides lifelong coverage with fixed premiums, a guaranteed death benefit, and a guaranteed cash value accumulation. e.g. A person buys a standard whole life policy at age 30 and continues paying the same premium each year for life, with the policy building cash value and paying out a fixed death benefit when they pass away.

Variable Universal Life Insurance

A type of permanent life insurance policy where the cash value and death benefit fluctuate based on the performance of investment sub-accounts chosen by the policyholder. It contains flexible premium, death benefit, and the choice of how the cash value will be invested. Contains monthly mortality charges and self directed investment choices. Policyowner has the right to select the investment which will provide the greatest return. e.g. A policyholder invests in stock market sub-accounts, so if the market rises, their cash value and death benefit may grow — but if it falls, both may decrease.

Override

The portion of commission earned by an upline (e.g. Marketing Director) when someone in their downline (e.g. a newly licensed agent) makes a sale. Override percentage is the difference in percentage between and up line and a downline. e.g.: You’re at 30%, and Ikenna is at 50%. You sell a policy that earns $1,000 commission. You get $300, Ikenna gets an override of $200 — the difference between his 50% and your 30%.

MLM: Multi-Level Marketing

A business model where individuals sell products or services directly to consumers while also recruiting others to do the same, forming a hierarchical structure of “downlines” and “uplines.” Earnings come from personal sales and a percentage of sales made by recruits (override). e.g. A WFG associate earns commission selling life insurance, and additional income from the sales of new agents they’ve recruited.

Key Employee Indemnification

A business strategy in which a company purchases a life insurance policy on a key employee to compensate (indemnify) the business for the financial loss that could occur if that employee dies. The company is both the policyowner and beneficiary, while the employee is the insured and must provide written consent. Standard or normal policies used are- term, whole, universal life insurance. e.g. A company buys a universal life policy on its top sales director so that if the director dies, the company receives the death benefit to offset revenue loss and recruitment costs.

Limited-Pay Life Insurance

A type of permanent life insurance where you pay premiums for a limited number of years (e.g., 10, 20), but coverage continues for life. e.g. Someone may choose a 20-year limited-pay whole life policy and be done paying premiums by retirement, but still remain covered until death.

Permanent Life Insurance

A type of life insurance that provides coverage for the insured’s entire life as long as premiums are paid. It includes a cash value component that grows over time. e.g. Unlike term life insurance, which expires after a set period, permanent life insurance (like whole life or universal life) guarantees a death benefit and builds savings.

Increasing Term Insurance

A type of term life insurance where the death benefit increases over time, often to keep up with inflation or income growth. e.g. A $100,000 term policy might increase by 5% annually, reaching $200,000 after several years — but premiums also tend to rise with the benefit.

Credit Life Insurance

A type of policy designed to pay off a borrower’s loan if they die before it’s repaid. The lender is the beneficiary, not the borrower’s family. e.g. A bank may require a credit life policy for a mortgage or car loan, so if the borrower dies, the remaining balance is paid directly to the lender.

Payor Benefit rider

A rider added to a juvenile or dependent’s (child) life insurance policy that waives premium payments if the payor (usually a parent or guardian) dies or becomes disabled before the insured reaches a certain age, often 21 or 25. e.g. A parent buys a life policy for their child with a payor benefit rider. If the parent becomes disabled or dies, the insurance company waives future premiums, and the policy stays active until the child becomes an adult.

Juvenile Insurance

A permanent life insurance policy purchased by a parent, grandparent, or guardian for a minor child. It builds cash value over time and guarantees lifelong coverage as long as premiums are paid. e.g. A father buys a whole life policy for his 5-year-old daughter. The policy provides a small death benefit and accumulates cash value that she can use in adulthood — for example, to borrow against or help fund college.

Spouse insurance

A rider or supplemental policy that provides term life insurance coverage for the spouse of the primary insured under a main life insurance policy. It typically offers a limited death benefit and expires after a certain period or when the primary policy terminates. e.g. A life insurance policy includes a spouse rider that provides $50,000 in term coverage for the insured’s husband, protecting the family financially in case of his premature death.

Family Income insurance

A type of life insurance that pays the beneficiary a regular monthly income from the date of the insured’s death until a specified period (often the remainder of a fixed term). It combines decreasing term insurance with income protection. e.g. A man buys a 20-year family income policy. If he dies in year 5, his family will receive monthly income payments for the remaining 15 years of the term, in addition to a lump-sum death benefit if applicable.

Joint Life Insurance

Insurance policy that covers the lives of two people and is payable upon the first death. e.g. A couple purchases a joint life insurance policy that pays out upon the first spouse’s death to help the surviving spouse cover household expenses or debts.

Adjustable Whole Life Insurance

A type of whole life insurance that offers limited flexibility in the premium payment amount, face value (death benefit), and payment period, while still maintaining the core features of traditional whole life coverage — such as guaranteed death benefit and cash value accumulation. e.g. A policyholder chooses a higher premium early in life to build more cash value quickly, then later adjusts and reduces the premium once the policy is well-funded — but the coverage remains whole life throughout.

Limited Whole Life Insurance

A type of permanent life insurance where the policyholder pays premiums for a limited period (such as 10, 20, or 30 years), but the coverage lasts for their entire life. Once the premium payment period ends, no further payments are required, but the death benefit and cash value remain intact. e.g. A 35-year-old buys a 20-pay limited whole life policy. They pay premiums until age 55, and after that, the policy stays in force for life — with no further payments needed.

Decreasing Term Life Insurance

A type of term life insurance where the death benefit decreases over time, typically in regular intervals, while the premium remains level. It’s often used to cover debts or obligations that reduce over time, like a mortgage. Decreasing term policy is issued with a decreasing death benefit and level premiums. e.g. A homeowner takes out a 20-year decreasing term policy aligned with their mortgage. As their mortgage balance declines, the life insurance death benefit decreases as well — protecting the lender or family. Least expensive option to pay off mortgage

Partial Surrender

A feature available in some permanent life insurance policies (such as Universal Life, Variable life, Indexed universal life, that allows the policyowner to withdraw a portion of the policy’s cash value without fully canceling the policy. This reduces the cash value and potentially the death benefit, depending on the terms of the policy. e.g. A policyholder with a universal life policy and $40,000 in cash value needs $10,000. They request a partial surrender. The insurer deducts $10,000 from the cash value and may reduce the death benefit accordingly, but the policy remains active.

Modified Whole Life Insurance

A type of whole life insurance where the initial premium payments are lower for the first few years than typical whole life policies and then increase to a higher fixed amount for the remainder than typical, of the policyholder’s life. It provides lifetime coverage and builds cash value like standard whole life policies, but starts with more affordable premiums. e.g. A 30-year-old buys a modified whole life policy with $100,000 death benefit. For the first 5 years, the premium is $50/month. After year 5, the premium rises to $120/month and stays fixed for life. This allows lower upfront costs while still accumulating cash value.

Variable Life Insurance

A permanent life insurance policy with fixed premiums and a cash value invested in separate account sub-accounts chosen by the policyholder. The cash value and death benefit can rise or fall based on investment performance. Premiums are NOT flexible (unlike Variable Universal Life). e.g. A policyholder pays a fixed premium every month, and their cash value grows or decreases depending on how their selected stock and bond sub-accounts perform.