Life Insurance Common Terms

Policyholder: The individual who owns the life insurance policy and pays the premiums.

Insured: The person whose life is insured by the policy. In the case of term life insurance, the insured is the person whose death triggers the payout.

Beneficiary: The person or entity designated to receive the death benefit upon the insured’s passing. This is typically a family member, spouse, or a trust.

Death Benefit: The sum of money that is paid out to the beneficiary upon the insured’s death. It is the primary purpose of life insurance and provides financial protection to the beneficiary.

Premium: The payment made by the policyholder to the insurance company to maintain the life insurance coverage. Premiums can be paid monthly, annually, or at other intervals depending on the policy.

Term: The length of time for which the life insurance policy provides coverage. Term life insurance policies are typically available for 10, 20, or 30 years.

Cash Value: The accumulated savings component of a permanent life insurance policy, such as whole life or universal life. This value grows over time and can be accessed by the policyholder through withdrawals or policy loans.

Face Amount/Sum Assured: The initial amount of coverage specified in the life insurance policy. It represents the death benefit that will be paid out to the beneficiary.

Riders: Additional provisions or benefits that can be added to a life insurance policy to enhance its coverage. Common riders include accelerated death benefit, accidental death benefit, or waiver of premium.

Surrender Value: The amount of money that a policyholder receives if they terminate or surrender a permanent life insurance policy before its maturity. It represents the policy’s cash value minus any applicable fees or penalties.

Underwriting: The process by which an insurance company assesses the risk factors associated with an applicant before issuing a life insurance policy. Underwriting determines the premium rates and eligibility for coverage.

Contestability Period: A specific timeframe (usually two years) from the policy’s start date during which the insurance company can investigate and potentially deny a claim based on misrepresentation or non-disclosure of relevant information by the policyholder.