Like many industries, the world of insurance has its own unique set of vocabulary to describe its products. To help you understand the information included in a life insurance policy, we’ve gathered some basics.
A Helpful Glossary of Common Policy Types and Terms
Beneficiary: The person or party named by the owner of a life insurance policy to
receive the policy benefit.
Cash value: The savings element of a permanent life insurance policy that
represents the policy owner’s interest in the policy.
Contingent beneficiary: The party designated to receive proceeds of a life
insurance policy following the insured’s death if the primary beneficiary
predeceased the insured.
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.
Dividend: A return of part of the premium.
Face amount: The amount of the death benefit payable under a life insurance
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.
Insurable interest: The interest an insurance policy owner has in the risk that is
insured. The owner of a life insurance policy has an insurable interest in the
insured when the policy owner is likely to benefit if the insured continues to live
and is likely to suffer some loss or detriment if the insured dies.
Insured life: The person on whose life the policy is issued.
Original age conversion: A conversion of a term life insurance policy to a
permanent plan of insurance at a premium rate, based on the insured’s age
when the original term policy was purchased.
Permanent life insurance: Life insurance that provides coverage throughout the
insured’s lifetime and also provides a savings element.
Policy anniversary: As a general rule, the date on which coverage under an
insurance policy became effective.
Premiums: Amount paid to the insurance company to buy a policy and keep it in
Renewable term life insurance: A term life insurance policy that can
be renewed at the end of the policy term.
Term life insurance: A life insurance policy which provides a stated
benefit upon the holder’s death, provided that the death occurs
within a certain specified time period. Policy does not build up a
Universal life insurance: A type of flexible permanent life insurance
offering both term life insurance as well as a savings element, which is
invested to provide a cash value buildup. Elements can be reviewed
and altered as a policyholder’s circumstances change.