24 Life Insurance Terms That Can Save You Money and Confusion

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Life insurance provides a cash benefit to your beneficiaries when you die, but the industry is full of terms that can affect how much coverage you get, what you pay and how your policy works. Understanding those terms before you buy — or when reviewing an existing policy — can help you avoid confusion, compare coverage more confidently and make smarter decisions that may save you money.

Here are some common life insurance terms you may come across while shopping for a new policy or managing one you already have.

Glossary of Life Insurance Terms

Here are some key life insurance-related words and phrases you should know, organized alphabetically:

• Accelerated Death Benefit / Living Benefits: An accelerated death benefit lets the insured access a portion of the life insurance death benefit while still alive if they are diagnosed with a qualifying serious or terminal illness. The amount taken early is usually deducted from the death benefit paid to beneficiaries later.
• Beneficiary: The beneficiary is the person or entity (such as a charity or trust) who will receive the death benefit of the life insurance policy upon the insured’s death.
• Cash Value: Cash value is money that accumulates inside some permanent life insurance policies that the insured may be able to withdraw or borrow (reducing the death benefit it not repaid). Using the cash value can reduce the amount of the benefit when a claim is made later on.
• Cash Surrender Value: Cash surrender value is the amount of money you may receive if you cancel a permanent life insurance policy before you die. It is usually the policy’s cash value minus any surrender charges, outstanding loans, or other fees.
• Claim: A life insurance claim is the formal request to be paid from the policy when the beneficiary files a claim after the insured dies.
• Contestability Period: The contestability period is the timeframe during which the insurer can refuse to pay a claim if it discovers there is a material misrepresentation on the insured’s application for coverage.
• Death Benefit: The death benefit is the money paid to the beneficiary after the insured dies.
• Exclusions: Exclusions are instances where the insurer won’t pay the death benefit, such as if the insured commits suicide within a certain time after purchasing coverage.
• Evidence of Insurability: Evidence of insurability is documentation, such as medical records, that proves the insurance applicant is insurable.
• Final Expense Life Insurance: Final expense life insurance is designed to cover the insured’s funeral and other end-of-life costs.
• Free-Look Period: The free-look period gives the newly insured a set amount of time to review the policy, cancel it if desired, and receive a full refund of any premiums paid.
• Grace Period: The grace period is the time between the insured missing a premium payment and the insurer cancelling coverage.
• Guaranteed Issue Life Insurance: Guaranteed issue life insurance is coverage that anyone within a certain age range will qualify for, regardless of health status.
• Insured: The insured is the person covered by the life insurance policy.
• Paramedical Exam: A paramedical exam is a basic health screening that involves collecting the potential insured’s weight, height, blood pressure, blood sample, urine sample and medical history to determine their eligibility for life insurance and coverage cost. This is not always required.
• Permanent Life Insurance: Permanent life insurance will remain in effect for the rest of the insured’s life as long as premiums are paid.
• Policy: The policy is the official document describing the insured’s life insurance coverage.
• Policyowner: The policyowner is the person with legal authority over the life insurance policy and is usually the same person as the insured.
• Premium: The premium is the cost of the life insurance coverage, often billed monthly.
• Quote: A life insurance quote is an estimate of how much coverage will cost. It can change after an official application is processed.
• Rider: A rider adds optional benefits and features to a life insurance policy, such as coverage for a child or a spouse.
• Surrender: Surrender is the formal act of cancelling a life insurance policy.
• Term Life Insurance: Term life insurance only remains in effect for a set period, such as 10, 20, or 30 years.
• Underwriting: Underwriting is the process of evaluating a life insurance application to determine whether the applicant is eligible for coverage and, if so, at what cost.

Why This Knowledge Matters

“Understanding these terms before shopping around for a life insurance policy is crucial to make sure you don’t end up overpaying for a policy or buying one that doesn’t actually fit your needs. It also equips you with the right context so you can ask the right questions to your agent and ensure that you and your loved ones are truly protected rather than just insured,” said Goosehead Insurance agent Nick Ramirez.

Important Note

The above glossary of terms isn’t an exhaustive list of life insurance-related definitions, nor are the definitions comprehensive. The list is intended to jumpstart your basic life insurance knowledge. You’re encouraged to speak with a licensed life insurance agent for personalized guidance.

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