Life Insurance Glossary
73 terms. Plain English. No spin.
Lenny Burton, CLU®
NPN 19046937
"Know the words.
Own the decision."
Own the decision."
73 terms. Plain English. No spin.
Life insurance has its own vocabulary and agents do not always take the time to translate it. These definitions cover every term you are likely to encounter before, during, and after buying a policy. Each one is written the way I would explain it across a kitchen table — no shortcuts, no fine print buried in a footnote.
A rider that allows the policyholder to receive a portion of the death benefit while still living, if diagnosed with a terminal illness. The advance is typically tax free under IRS rules. The amount paid out is subtracted from the benefit paid to the beneficiary at death. Most modern term and permanent policies include this rider at no extra cost.
A supplemental coverage that pays a benefit only if death results from a covered accident, or if the insured loses a limb or eyesight due to an accident. AD&D is not a substitute for life insurance. Many employers bundle the two on a single enrollment page, which can cause confusion about what is actually covered. A natural death does not trigger an AD&D claim.
The six functional activities used as a clinical and insurance measurement of a person's ability to care for themselves: bathing, dressing, eating, transferring (getting in and out of a bed or chair), toileting, and walking. Life insurance accelerated death benefit riders typically allow early access to the death benefit if the insured cannot perform two or more ADLs without assistance due to a chronic illness expected to last at least a year.
Long term care insurance also uses ADL criteria as a primary trigger for benefit eligibility. The specific number of ADLs required and the definitions used vary by policy.
See also: Accelerated Death Benefit
The educational institution that awards the Chartered Life Underwriter (CLU ®), Chartered Financial Consultant (ChFC ®), and Retirement Income Certified Professional (RICP ®) designations, among others. Founded in 1927 and based in King of Prussia, Pennsylvania, the American College is the nation's largest nonprofit educational institution devoted to financial services. Coursework combines technical knowledge in insurance, financial planning, and estate planning with applied ethics. Designation holders are required to complete continuing education and adhere to a professional code of ethics.
The formal authorization by an insurance carrier that allows a licensed agent to sell that carrier's products. An agent can hold a valid state insurance license but still be unable to sell a specific carrier's products without a carrier appointment. Appointments are carrier specific and state specific. An agent can hold appointments with multiple carriers simultaneously, which is how independent agents work — they are appointed with several companies and can place business with whichever carrier offers the most appropriate coverage for a given client.
See also: Independent Agent, NPN
The person or entity named to receive the death benefit when the insured person dies. A policyholder can name multiple beneficiaries and specify what percentage each receives. Beneficiary designations override a will — the person named on the policy receives the money regardless of what the will says. Keeping the designation current after major life events (marriage, divorce, birth, death) is one of the most important ongoing policy maintenance tasks.
See also: Per Capita vs Per Stirpes
Your beneficiary form is the reason you buy life insurance. An outdated or incorrect form can send the death benefit to exactly the wrong person.
A legal contract between business co-owners that governs what happens to a deceased owner's share of the business. Life insurance is typically the funding mechanism: each owner holds a policy on the other, and when one dies, the surviving owner uses the death benefit to buy out the deceased's share from the estate. Without a funded buy sell agreement, a business partner's death can force an unplanned sale or introduce the deceased's heirs as unwilling co-owners.
The savings or investment component inside a permanent life insurance policy (whole life, universal life, IUL). A portion of each premium goes into a separate account that grows over time, either at a guaranteed rate (whole life) or tied to an index or market (IUL, variable life). The policyholder can borrow against the cash value or surrender the policy for its cash value minus any surrender charges.
Cash value is not the same as the death benefit. When the insured dies, the carrier typically keeps the cash value and pays the face amount.
See also: Surrender Charge, Whole Life Insurance
Cash value is not an investment. It is a policy feature that supports a level premium over a lifetime while giving you limited access to money that has not yet gone toward the cost of insurance. Yes, it grows through dividends and credited interest depending on the policy type.
But many people compare permanent life insurance to investment accounts without accounting for the reason they bought the policy in the first place: the face amount, the death benefit. Buy life insurance for the death benefit. The cash value is a feature, not the product.
A professional designation awarded by the Certified Financial Planner Board of Standards, Inc. (CFP Board). Holders have completed coursework covering financial planning, investment, tax, retirement, estate planning, and insurance; passed a comprehensive examination; met an experience requirement; and agreed to a fiduciary standard of conduct. The fiduciary requirement means a CFP ® must act in the client's best interest when providing financial planning services.
CFP ® is not a life insurance or underwriting designation. It is a broad financial planning credential. CFP ® professionals may or may not specialize in life insurance.
See also: CLU ®, The American College of Financial Services
A professional designation awarded by The American College of Financial Services to financial professionals who have completed advanced coursework in financial planning, including insurance, income taxation, retirement planning, estate planning, and special planning situations. The ChFC ® curriculum is similar in scope to the CFP ® program but goes deeper on applied case studies and includes additional elective coursework in areas such as business planning.
See also: CLU ®, The American College of Financial Services
The oldest life insurance designation in the United States, awarded by The American College of Financial Services to professionals who have completed advanced coursework in life insurance planning, estate planning, business insurance, and related disciplines. Founded in 1927, the CLU ® designation requires passing eight college level courses and meeting ongoing continuing education requirements.
See also: ChFC ®, The American College of Financial Services
A life insurance company organized as a stock corporation, owned by shareholders. Commercial carriers are the most common form of life insurance company and include most of the large carriers operating in the United States today. Profits may be distributed to shareholders. Policyholders of a stock company are customers, not owners.
Contrast with a mutual carrier, in which policyholders themselves are the owners.
See also: Mutual Carrier, Reciprocal Exchange
The process by which interest is calculated on both the original principal and the accumulated interest from prior periods. In the context of life insurance, compound interest applies to policy loan balances (unpaid interest is added to the principal and begins earning interest itself), cash value accumulation in some permanent products, and premium financing arrangements.
On a policy loan, compound interest is the mechanism by which a modest loan can grow to a balance that threatens the policy if left unmanaged for years. On a cash value account, compound interest is how a long held policy accumulates substantial value over decades.
See also: Policy Loan, Cash Value
A receipt given to a life insurance applicant when the first premium is paid with the application. It specifies the conditions under which coverage takes effect before the policy is formally issued. If the applicant meets the conditions stated on the receipt (typically meaning the applicant qualifies for the applied-for coverage at standard or better rates), coverage is considered effective as of the application date. If the applicant does not meet the conditions, coverage does not begin until the policy is delivered.
The conditional receipt determines whether a death during the underwriting review period would be covered. The terms vary by carrier and should be read carefully.
See also: Underwriting, Contestability Period
The first two years after a life insurance policy is issued, during which the insurer may investigate a claim and deny it if the application contained a material misrepresentation. After the two year contestability period expires, the insurer generally cannot contest the claim based on misrepresentation, though exclusions like the suicide clause may still apply.
This is why completing the application accurately matters. Errors that seem minor at issue can become grounds for denial during the contestability window.
A contractual right to convert a term life insurance policy to a permanent policy without providing new evidence of insurability. The conversion must typically occur before a specified age (often 65 or 70) and within the term period. The new permanent policy is issued at the insured's current age, not their original health rating, but no health questions are asked. This is a significant benefit for anyone whose health has declined since the original policy was issued.
See also: Group Life Insurance for how group policy conversion works differently.
The amount the insurance company pays to the beneficiary when the insured person dies. This is the face amount of the policy, sometimes adjusted by outstanding loans, unpaid premiums, or policy riders. For most term policies, the death benefit is a flat amount that does not change over the policy term.
Life insurance death benefits are generally received by beneficiaries free of federal income tax under IRC Section 101(a).
See also: Face Amount
A type of term life insurance where the death benefit shrinks over time, usually on a schedule designed to mirror a declining mortgage or debt balance. The premium typically stays level while the coverage goes down. Mortgage protection insurance is often structured this way.
A level term policy is usually preferable for income replacement purposes, because income needs do not decrease at a predictable rate.
See also: Level Term
A return of a portion of the premium paid to policyholders of participating whole life insurance policies. Dividends are paid when the company's actual costs, including mortality experience, expenses, and investment returns, are more favorable than the assumptions used to set the original premium. Dividends are not guaranteed.
A policyholder can typically apply dividends in several ways: take them as cash, apply them to reduce future premiums, use them to purchase paid up additions (which increase the death benefit and cash value), or leave them with the company to accumulate at interest.
See also: Paid Up Additions, Whole Life Insurance
An attorney who specializes in legal matters affecting older adults and their families, including Medicaid planning, long term care planning, guardianship, conservatorship, and special needs trusts. In the context of life insurance, an Elder Law attorney is most relevant when a beneficiary is elderly, has a disability, or receives needs based government benefits such as Medicaid or SSI.
A direct life insurance payout to someone on Medicaid or SSI can cause them to lose eligibility for those programs. An Elder Law attorney can structure the inheritance through a special needs trust or other arrangement that preserves benefit eligibility while still delivering the financial support you intended.
See also: Beneficiary, Estate Planning Team, ILIT
The age at which a permanent life insurance policy's cash value is scheduled to equal the policy's face amount. When a policy endows, the carrier pays the face amount to the policyholder as a living benefit and coverage ends. In traditional whole life policies, the endow age is typically 95, 100, or 121, depending on the policy form and issue date. Most modern policies use a maturity age of 121, which for practical purposes means the policy remains in force for the insured's entire expected lifetime without endowing prematurely.
Older policies with a maturity age of 95 or 100 can endow while the policyholder is still alive. The tax treatment of a living endowment payout differs from a death benefit and may be partially taxable. If you are reviewing an older policy, check the maturity date on the declarations page.
See also: Cash Value, Whole Life Insurance, Endowment Insurance
A form of life insurance that pays the face amount either to the beneficiary if the insured dies before a specified maturity date, or to the insured if they are still living when the policy matures. Endowment policies were commonly sold in the mid to late twentieth century as combined savings and protection products. Many have already matured, meaning the face amount was paid to the original policyholder while still alive.
If a deceased parent held a policy issued before the 1980s, it may have been an endowment. If the maturity date has already passed, the benefit may have already been paid out. Contacting the carrier is the only way to determine the current status of an old endowment policy.
See also: Face Amount, How to Find a Deceased Parent's Life Insurance Policy
A health questionnaire required when an employee elects group life coverage above the guaranteed issue amount, or in some cases when making coverage changes outside open enrollment. If your employer collects premiums without completing the EOI process, the coverage above the guaranteed issue amount may be invalid at the time of a claim.
Federal courts have held employers and plan administrators liable when EOI failures resulted in denied death benefit claims. See Van Loo v. Cajun Operating Co. (6th Cir. 2017) and the DOL v. Unum settlement (2024).
See also: ERISA, Group Life Insurance
The federal law that governs most employer-sponsored benefit plans, including group life insurance. ERISA sets minimum standards for plan administration, requires a Summary Plan Description, establishes a claims and appeals process, and imposes fiduciary duties on plan administrators.
Under ERISA Section 502(a)(3), beneficiaries can seek equitable remedies — including surcharge, estoppel, and reformation — when a fiduciary breach causes a loss. ERISA preempts most state insurance laws for employer-sponsored plans. Denied claimants have at least 180 days to file an internal appeal under 29 CFR 2560.503-1.
See also: Evidence of Insurability, Group Life Insurance
The process by which unclaimed property, including unclaimed life insurance benefits, is transferred to the state after a legally defined dormancy period. When a carrier cannot locate a beneficiary following a policyholder's death, state law eventually requires the carrier to turn over the benefit proceeds to the state's unclaimed property fund.
The dormancy period and specific rules vary by state. Most large carriers actively monitor the Social Security Death Master File and work to locate beneficiaries before escheatment occurs. If benefits have already been transferred to the state, they can often be claimed through the state's unclaimed property program. Contact the relevant state program directly for the applicable rules.
See also: How to Find a Deceased Parent's Life Insurance Policy
A life insurance strategy used when an estate contains illiquid assets — such as a family business, a farm, or real estate — that cannot be easily divided among multiple heirs. One heir inherits the illiquid asset; life insurance proceeds of equivalent value are paid to the other heir or heirs, ensuring each receives an equal share of the estate without forcing a sale of the asset or requiring the business heir to buy out siblings.
The life insurance is typically held in or funded through an ILIT and sized to match the estimated value of the illiquid asset at the insured's death. Estate equalization requires coordination among the life insurance professional, the estate planning attorney, and often a CPA.
See also: ILIT, Estate Planning Team, Buy Sell Agreement
The group of licensed professionals who collaborate to design, document, and implement a comprehensive estate plan. A well coordinated estate planning team typically includes an estate planning attorney (drafts wills, trusts, and powers of attorney), a CPA or tax advisor (addresses income and estate tax), a financial advisor, and a life insurance professional. The life insurance professional's role is to evaluate coverage needs, identify the right policy structure for the estate's goals, and ensure beneficiary designations and trust ownership are consistent with the overall plan.
Not every estate requires all of these professionals, but for estates with significant life insurance, real property, or business interests, coordinated professional advice is essential.
See also: ILIT, Estate Equalization
The death benefit stated on the face of the life insurance policy — the amount the insurer agrees to pay at death. For term policies, this is a fixed number. For some permanent policies, it can grow or be adjusted. The face amount does not include cash value; those are separate accounting entries within a permanent policy.
A legally required window after policy delivery — typically 10 to 30 days depending on state law — during which the policyholder may cancel the policy for any reason and receive a full refund of paid premiums. The free look period is a consumer protection right, not a carrier courtesy. Taking delivery of a policy starts the clock. Reviewing the policy carefully during this window is the last opportunity to confirm that what was issued matches what was applied for.
An organization that provides life insurance and other financial benefits to its members as part of membership in a fraternal, religious, ethnic, or civic organization. Fraternal benefit societies are chartered under state fraternal benefit society laws, which are separate from the state insurance laws that govern commercial carriers.
Coverage through a fraternal benefit society is real life insurance coverage. Members should contact their organization directly for benefit information, claims processes, and policy records. Fraternal societies maintain their own member records and have their own claims departments.
See also: How to Find a Deceased Parent's Life Insurance Policy
The period after a missed premium due date during which the policy remains in force and coverage continues. Most policies provide a 30 or 31 day grace period. If the insured dies during the grace period, the insurer pays the death benefit minus the overdue premium. If the grace period expires without payment, the policy lapses and coverage ends.
See also: Lapse
Life insurance provided through an employer or other sponsoring organization under a single master policy. The employer typically pays some or all of the premium for a base benefit, often one or two times annual salary. Employees may purchase additional supplemental coverage, sometimes subject to Evidence of Insurability requirements above the guaranteed issue amount.
Group coverage ends when employment ends. The face amount is usually far below what most families need for income replacement. See the full guide: Life Insurance Through Work.
See also: Portability, Conversion Privilege, ERISA
A rider that gives the policyholder the right to purchase additional coverage at specified future dates or life events without providing evidence of insurability. The rider locks in the right to buy more coverage regardless of health changes in the interim. It is particularly valuable when purchased young, because it secures the option to increase coverage as income and family obligations grow — even if a future health condition would otherwise make additional coverage unavailable.
A policy or coverage tier that does not require a health questionnaire or medical exam for approval. The insurer accepts all applicants regardless of health status. Guaranteed issue coverage typically carries higher premiums than underwritten coverage and often has a graded death benefit — a waiting period before the full benefit applies. Conversion coverage under a group policy is usually issued on a guaranteed basis.
See also: Underwriting
The RELIEF Calculator walks through your personal number in about five minutes. Free, no signup required.
Calculate My Coverage NeedA trust that owns a life insurance policy, removing the death benefit from the insured's taxable estate. Because the insured does not own the policy, the proceeds are not included in the estate for estate tax purposes. The ILIT is irrevocable — once established, the terms generally cannot be changed. ILITs are most commonly used by high net worth individuals whose estates may exceed the estate tax exemption and require careful ongoing administration.
A life insurance agent who is not employed by or exclusive to a single carrier. An independent agent can submit applications to multiple carriers and place each client with the company that offers the most appropriate coverage, price, and underwriting guidelines for that client's specific situation. Independent agents hold appointments with the carriers they work with but are not exclusive to any one of them.
Contrast with a captive agent, who represents a single company and can only sell that company's products. Because an independent agent can shop multiple carriers, they can often find a better fit for applicants with complex health histories or specific coverage needs.
The legal requirement that the person applying for a life insurance policy must have a legitimate financial or personal stake in the continued life of the insured. Spouses, parents, children, and business partners typically have insurable interest in each other. Insurable interest must exist at the time the policy is issued.
Without insurable interest, a policy can be contested or voided. The requirement prevents life insurance from functioning as a speculative instrument on a stranger's life. It is also why a third party cannot take out a policy on someone's life without that person's knowledge and consent.
See also: Key Person Insurance, Buy Sell Agreement
The section of the Internal Revenue Code that governs the tax treatment of employer provided group term life insurance. The first $50,000 of employer paid group term coverage is excluded from the employee's taxable income. Coverage above $50,000 generates imputed income, calculated using IRS Table I rates, which is reported on the employee's W-2.
Employees who are more than 2% shareholders of an S corporation follow different rules.
See also: Group Life Insurance
A life insurance policy that covers two people under a single contract. There are two common structures. First to die pays the death benefit when either insured dies, often used by couples or business partners to cover immediate financial obligations such as a mortgage or a buy sell agreement. Second to die (also called survivorship life) pays only after both insureds have died, and is commonly used in estate planning to provide liquidity for estate taxes or to fund a trust.
A joint policy typically costs less than two separate individual policies, but it covers two people as a unit rather than each independently. If the two insureds separate or the business partnership dissolves, the structure of a joint policy can create complications.
See also: Buy Sell Agreement, Key Person Insurance
A life insurance policy owned by a business on the life of an employee whose death would cause significant financial loss to the company — a founder, top salesperson, or irreplaceable technical expert. The death benefit goes to the business, not the employee's family, and is used to cover lost revenue, fund a search for a replacement, or buy time to restructure.
Key person premiums are generally not tax deductible, but the death benefit is typically received tax free.
See also: Buy Sell Agreement
What happens when a policy ends due to non payment of premiums after the grace period expires. A lapsed policy provides no coverage. A lapse is different from a surrender: a surrender is a voluntary cancellation; a lapse is an involuntary termination for non payment. Some policies have non forfeiture provisions that automatically use accumulated cash value to continue reduced coverage or purchase a paid up policy rather than allowing a lapse.
See also: Grace Period, Non Forfeiture Options
A term life insurance policy in which both the premium and the death benefit remain the same for the entire term period. "Level" refers to both the cost and the coverage staying constant — neither increases nor decreases. This is the most common term structure sold today and is the baseline for most income replacement needs analysis.
See also: Term Life Insurance, Decreasing Term
A non-profit cooperative among life insurance companies that maintains a coded database of health conditions disclosed on previous insurance applications. When you apply for life insurance, the insurer may query the MIB to check for inconsistencies between your current application and prior applications.
The MIB does not store full medical records — it stores coded flags. Consumers have the right to request their MIB file and dispute inaccurate entries under the Fair Credit Reporting Act.
See also: Underwriting
A life insurance company owned by its policyholders rather than by outside shareholders. In a mutual company, policyholders are both customers and owners. Surplus earnings above what is needed to run the company can be returned to eligible policyholders as dividends. The largest traditional whole life insurance companies in the United States are organized as mutuals.
See also: Commercial Carrier, Dividend
The choices available to a policyholder when a permanent life insurance policy lapses for non payment. Common options include: (1) cash surrender — take the cash value and terminate the policy; (2) reduced paid up — use the cash value to purchase a smaller paid up permanent policy with no further premiums required; (3) extended term — use the cash value to purchase term insurance for the original face amount for as long as the cash value will support it.
Non forfeiture options are contractual rights, not discretionary offers from the carrier.
A unique identifier assigned to each licensed insurance producer by the National Insurance Producer Registry (NIPR). The NPN is portable across states — it stays with the agent regardless of which states they are licensed in or where they move. Consumers can verify an agent's license status and active appointments by looking up their NPN on the NIPR public lookup at nipr.com.
See also: Appointed, Independent Agent
Small amounts of additional whole life insurance purchased using policy dividends on participating policies. Paid up additions increase both the death benefit and the cash value of the policy over time, with no additional underwriting required. They are one of the primary mechanisms by which a dividend paying whole life policy grows, purchased at the net single premium rate.
See also: Whole Life Insurance
A health evaluation conducted by a licensed examiner — typically a nurse or phlebotomist — as part of the life insurance underwriting process. The exam usually includes a review of medical history, a blood draw, a urine sample, blood pressure measurement, and basic vital signs. Results are sent directly to the carrier and become part of the underwriting file.
The paramedical exam is conducted at no cost to the applicant and is scheduled at a convenient location, including at home or at work. Accelerated underwriting programs allow some applicants to skip the paramed exam based on algorithmic review of third party data. Whether an exam is required depends on the carrier, the applied for face amount, and the applicant's age.
See also: Underwriting
Two methods of distributing a death benefit when a beneficiary dies before the insured. Per capita means the benefit is divided equally among the surviving named beneficiaries. Per stirpes means the deceased beneficiary's share passes to that beneficiary's own heirs — their descendants.
For most families with children, per stirpes is the more protective designation. It ensures that a grandchild inherits the share that would have gone to their parent. Review and update beneficiary designations after every major family event.
See also: Beneficiary
A document required by state insurance regulators to be provided when selling permanent life insurance. It projects future values — premiums, death benefit, cash value — under guaranteed and non guaranteed assumptions. Non guaranteed values depend on future dividends, credited interest, or index performance and are not promises.
Illustrations are required to show both a guaranteed column and a non guaranteed column. Relying only on the non guaranteed column to evaluate a policy is a common and costly mistake.
A loan taken against the cash value of a permanent life insurance policy. The policy itself serves as collateral. The policyholder can borrow up to the available cash value without a credit check or approval process. Interest accrues on the outstanding loan balance at a rate specified in the policy.
A policy loan does not have to be repaid on any schedule, but if the outstanding balance plus accrued interest exceeds the cash value, the policy can lapse. If the insured dies with an outstanding loan, the carrier deducts the loan balance and any unpaid interest from the death benefit before paying the beneficiary.
See also: Cash Value, Whole Life Insurance
A feature of some group life insurance plans that allows a departing employee to continue the group policy by paying the premium themselves, without converting to a new individual policy. Ported coverage stays in the group plan and uses the group's risk pool rates — but because the group now contains only people who chose to port (a sicker than average pool), premiums often increase substantially.
Portability is distinct from conversion: ported coverage stays in the original group plan; converted coverage becomes a new individual policy.
See also: Conversion Privilege
A rider on a participating whole life insurance policy that allows the policyholder to contribute additional premiums beyond the base policy requirement to purchase paid up additions. Each PUAR contribution buys a small increment of fully paid whole life insurance with immediate cash value. The rider accelerates cash value accumulation and increases the death benefit faster than dividend reinvestment alone.
PUARs are a primary tool in whole life policy design for cash value optimization. The IRS limits the ratio of total premium contributions to death benefit under TAMRA guidelines. A properly designed policy stays within these limits. Exceeding the limits converts the policy to a Modified Endowment Contract (MEC), which changes the tax treatment of loans and distributions.
See also: Paid Up Additions, Dividend, Whole Life Insurance
An unincorporated association in which members, called subscribers, agree to insure each other. Each subscriber appoints an attorney in fact — a management company — to exchange contracts of indemnity on their behalf. The attorney in fact manages underwriting, claims, and operations for the exchange. Reciprocal exchanges are more common in property and casualty insurance than in life insurance but do exist in both markets.
See also: Commercial Carrier, Mutual Carrier
The restoration of a lapsed life insurance policy to full force and effect. Most policies allow reinstatement within a specified period after lapse, typically two to five years depending on the policy and the state. To reinstate, the policyholder must generally provide evidence of insurability, pay all past due premiums, and pay accumulated interest on those premiums.
A reinstated policy may carry a new contestability period from the date of reinstatement. Reinstatement is almost always preferable to applying for a new policy, particularly if the insured's health has changed since the original policy was issued.
See also: Lapse, Contestability Period
A six-component framework for calculating a family's life insurance need. The acronym stands for:
The RELIEF calculator is available at askforlenny.com/how-much-life-insurance-do-i-need.
A term policy that can be renewed at the end of the term without new evidence of insurability, typically on a year by year basis. The premium increases at each renewal, reflecting the insured's older age and the adverse selection built into renewable pools. Renewable term is useful as a bridge — it prevents a coverage gap if a replacement policy is delayed — but it is almost always more expensive in the long run than buying a new level term policy while in good health.
An amendment or endorsement added to a life insurance policy that modifies coverage or adds a benefit not included in the base policy. Common riders include the guaranteed insurability rider, waiver of premium rider, accelerated death benefit rider, child term rider, and accidental death benefit rider. Some riders cost extra; others — like the accelerated death benefit — are often included at no charge.
Reading and understanding available riders is as important as evaluating the base policy.
A method of receiving life insurance death benefit proceeds other than as an immediate lump sum. Common options include: interest only (the carrier holds the proceeds and pays interest periodically while the principal remains intact); fixed period (proceeds paid out over a set number of years); fixed amount (a set dollar amount paid periodically until proceeds are exhausted); and life income (proceeds converted to an income stream for the beneficiary's lifetime).
Most beneficiaries choose the lump sum. Settlement options exist for beneficiaries who prefer structured payments or are concerned about managing a large sum at once. The right choice depends on the beneficiary's financial situation and needs at the time of the claim.
See also: Beneficiary, Death Benefit
A fee charged when a policyholder cancels a permanent life insurance policy and takes the cash value, especially during the early years of the policy. Surrender charges are highest in year one and typically decline on a schedule over seven to fifteen years. The surrender value is the cash value minus the surrender charge. Understanding the surrender charge schedule is essential before purchasing any permanent policy where the cash value is part of the decision.
See also: Cash Value
Life insurance that provides a death benefit for a defined period — typically 10, 15, 20, or 30 years. If the insured dies during the term, the carrier pays the death benefit to the beneficiaries. If the insured outlives the term, the coverage ends and no benefit is paid.
Term life is the simplest and least expensive form of life insurance per dollar of coverage. Most financial planners recommend it as the baseline for income replacement during the years a family is most financially exposed — when children are young and a mortgage is outstanding.
See also: Whole Life Insurance, Level Term, Conversion Privilege
An underwriting classification applied when an applicant's health or lifestyle presents higher risk than standard but does not warrant a decline. Table ratings are expressed as a percentage increase above the standard premium rate, typically in increments labeled Table A through Table P or by similar notation. Each step up represents an additional premium load.
A table rated policy is approved coverage. It is not a decline. Many applicants who expect a decline receive a table rated offer instead, particularly when the application goes to a carrier with favorable underwriting guidelines for their specific health profile. An independent agent who knows which carriers table rate a given condition most favorably can make a meaningful difference in what the premium looks like.
See also: Underwriting, Life Insurance After Being Declined
The process by which an insurance company evaluates an applicant's risk before issuing a policy. Life insurance underwriting reviews medical history, prescription records, MIB records, driving history, occupation, and lifestyle factors. The result is a rate class — preferred plus, preferred, standard, substandard, or decline — that determines the premium.
Accelerated underwriting relies on algorithmic analysis of database records rather than a physical exam and is increasingly common for lower face amounts and younger applicants.
See also: Medical Information Bureau, Evidence of Insurability
A type of permanent life insurance with flexible premiums and an adjustable death benefit. A portion of each premium covers the cost of insurance; the remainder goes into the cash value account, which earns interest at a declared rate. The policyholder can increase or decrease premiums within limits and adjust the death benefit over time.
If the cash value is insufficient to cover the cost of insurance, the policy can lapse — a risk not present in whole life. Understanding the long term premium requirements is essential before buying.
See also: Cash Value, Whole Life Insurance
A type of permanent life insurance in which the death benefit and cash value fluctuate based on the performance of investment sub accounts chosen by the policyholder. Unlike whole life or universal life, variable life does not guarantee a minimum cash value. The policyholder bears the investment risk directly.
Variable life and variable universal life are classified as securities. The selling agent must hold a securities license in addition to a life insurance license. A strong investment year can increase the death benefit and cash value; a poor year can reduce both. The base death benefit is the minimum amount guaranteed in the policy regardless of investment performance.
See also: Universal Life Insurance, Whole Life Insurance
A type of permanent life insurance that provides coverage for the insured's entire life, with level premiums and a guaranteed death benefit, as long as premiums are paid. Whole life builds cash value at a guaranteed minimum rate and, for participating policies, may earn dividends that can be used to pay premiums, purchase paid up additions, or be taken in cash.
The cash value is not the same as the death benefit — the carrier retains the cash value at death and pays the face amount. Whole life is the most expensive form of coverage per dollar of death benefit. It is neither always a bad choice nor always the right one. Its purpose is developing cash value to support a level premium over a lifetime.
See also: Cash Value, Paid Up Additions, Term Life Insurance
A tax free transfer of the cash value from one life insurance policy to another (or from a life insurance policy to an annuity), named after Section 1035 of the Internal Revenue Code. A properly executed 1035 exchange allows the policyholder to move to a better or more appropriate policy without triggering a taxable gain on the transferred cash value.
The exchange must be conducted directly between carriers — the policyholder cannot take constructive receipt of the funds. Gains would be taxable if the exchange does not qualify under Section 1035.
See also: Cash Value
A Florida insurance license authorizing the holder to sell life insurance, annuities, and health insurance. The 2-14 is a combined license covering the full scope of individual life and health products. Agents holding a 2-14 can sell term life, permanent life, disability income, and major medical insurance. The "2" prefix in Florida license codes indicates a life and health licensing category under Florida Statute Chapter 626.
A Florida insurance license that adds variable products — variable annuities, variable life insurance — to the 2-14 authorization. In addition to standard insurance licensing requirements, agents holding a 2-15 must also hold a FINRA Series 6 or Series 7 securities registration, because variable products are classified as securities under federal law.
See also: 2-14, 2-20, Variable Life Insurance
A Florida insurance license authorizing the holder to sell property and casualty insurance, including homeowners, auto, commercial property, and liability lines. The 2-20 is not a life insurance license. It is included here because Florida agents sometimes hold both a 2-14 or 2-15 (life and health) and a 2-20 (property and casualty), operating across both licensing categories.
I review every application personally. No call center, no script. Just an honest conversation about your situation.
Talk To LennyMaintained by Leonard Burton, CLU® | NPN 19046937 | Licensed in FL, OH, and IN | Last reviewed April 2026
Disclosures
Educational Use Only. The definitions on this page are provided for general informational purposes and do not constitute legal, tax, or financial advice. Life insurance policy terms, conditions, and features vary by carrier, policy form, and state of issue. In all cases, the language of your actual policy contract governs. Where any definition here differs from your policy, your policy controls.
Tax and Legal Information. References to tax treatment (IRC Section 79, IRC Section 101(a), IRC Section 1035, ERISA) are provided for educational purposes only. Tax laws change and your specific situation may differ. Consult a qualified tax advisor or attorney before making decisions based on tax implications.
No Offer of Coverage. Nothing on this page constitutes an offer, solicitation, or guarantee of insurance coverage or approval. Coverage availability, rates, and terms depend on individual underwriting and the laws of your state.
Licensing. Leonard Burton, CLU® (NPN 19046937) is licensed to sell life insurance in Florida (W548097), Ohio (1258856), and Indiana (3417602). Coverage Captain is not licensed in all states.