Life Insurance Glossary: Terms in Plain English

Accelerated death benefit: A rider that lets the insured receive part of the death benefit early after a qualifying terminal, chronic or critical illness. It is an advance, so the death benefit is reduced by what was paid.
Advance: Commission paid up front when a policy is issued, before the client has paid the premiums that earn it. Until earned, part of it can be charged back.
Agent: A person licensed by the state to sell insurance. In most states an agent must also be appointed by an insurer before selling that insurer's products.
Appointment: An insurer's formal authorization, filed with the state, for a licensed agent to act on its behalf. Licensed and appointed are two different things.
Beneficiary: The person or entity named to receive the death benefit. A primary beneficiary is paid first; a contingent beneficiary is paid if no primary beneficiary survives.
Book of business: The policies and client relationships an agent has written and services. Who owns it, and the renewals on it, is set by the agent's contract.
Buyer's guide: A standardized consumer explanation of how life insurance works and how to compare policies, which many states require insurers to provide.
Cash value: The savings element inside a permanent policy. It can usually be borrowed against or received on surrender. Term insurance has none.
Chargeback: Repayment owed by an agent when a policy that paid commission in advance lapses or is canceled within a period set by the agent's contract.
Chargeback window: The period, set by the agent's contract, during which a lapse or cancellation causes unearned commission to be taken back.
Conditional receipt: A receipt for the first premium under which coverage begins on the application or exam date only if the applicant turns out to be insurable as applied for.
Contestable period: The period after issue during which the insurer can challenge a policy over misstatements in the application. State law sets its length.
Conversion: A right in some term policies, and in group coverage by law, to exchange the coverage for a permanent policy without new evidence of insurability.
Cost of insurance: The monthly mortality charge deducted inside a universal life policy. It generally rises as the insured ages.
Death benefit: The amount paid to the beneficiary when the insured dies while the policy is in force.
Dividend: In a participating policy, a return of part of the premium declared by the insurer. Dividends are not guaranteed.
Entire contract: The rule that the policy, plus the application if a copy is attached, makes up the whole agreement between owner and insurer.
Errors and omissions insurance: Professional liability coverage for an agent, protecting against claims that a mistake or oversight harmed a client.
Exclusion: A cause of death or circumstance the policy does not cover, stated in the contract.
Exclusive lead: A sales lead sold to one agent only, as opposed to a shared lead sold to several agents at once. Aged leads are older leads sold at a lower price.
Face amount: The amount of insurance stated in the policy, the base death benefit.
Free look: A period after delivery during which the owner can return a policy for a refund. Its length and conditions are set by state law.
Grace period: The time after a missed premium during which the policy stays in force. State law sets the minimum.
Guaranteed insurability: A rider giving the right to buy more coverage at set dates or life events without new evidence of insurability.
IMO and FMO: Marketing organizations that contract agents with insurers. Neither term is defined in insurance law, so the contract decides what either one owes you.
Incontestability: The provision that stops the insurer from contesting a policy, apart from narrow exceptions, once the contestable period has passed.
Indexed universal life: Universal life whose interest credit is tied to the performance of a market index, subject to caps, participation rates and a floor. The floor protects the credit, not the account value.
Insurable interest: A real interest in the continued life of the person insured, such as family ties or a financial stake, required when the policy is bought.
Insured: The person whose death triggers the payment of the death benefit. Often, but not always, the owner.
Lapse: The end of a policy's coverage because premiums were not paid or, in universal life, because the value could no longer cover the charges.
Modified endowment contract: A life policy funded faster than federal tax law's seven-pay test allows. It keeps the tax-free death benefit but loses favorable tax treatment of loans and withdrawals.
Nonforfeiture options: The choices a permanent policy owner has when premiums stop: cash surrender, reduced paid-up insurance or extended term insurance.
Override: Commission paid to an upline agent or organization on business written by agents below them. It is set by contract.
Owner: The person or entity who controls the policy: pays premiums, names the beneficiary and can surrender or change it.
Policy loan: A loan from the insurer using the cash value as collateral. Unpaid loans and interest reduce the death benefit.
Premium: The payment that keeps a policy in force.
Rebating: Giving a client part of the commission or something of value as an inducement to buy, restricted by state law.
Reinstatement: Restoring a lapsed policy, usually within a set period and with evidence of insurability and payment of back premiums.
Release: An upline's agreement to let an agent move their appointment with an insurer to a different upline. Contracts set whether and when it is given.
Replacement: Buying a new policy in a way that ends or reduces an existing one. States regulate it closely with required forms and notices.
Representation: A statement in an application that the applicant believes is true. A false one voids coverage only if it was material or fraudulent.
Rider: An addition to a policy that adds or changes a benefit, usually for an added charge.
Settlement options: The ways a death benefit can be paid out: a lump sum, interest only, installments for a fixed period or amount, or a life income.
Suicide clause: A provision limiting the death benefit if the insured dies by suicide within a stated period after issue, commonly two years. Where state law does not fix the period, the contract sets it.
Survivorship life: One policy on two lives that pays at the second death. Also called second-to-die.
Term life: Coverage for a stated period with no cash value. If the insured outlives the term, coverage ends.
Twisting: Inducing a client to replace or convert a policy through misrepresentation or an incomplete comparison. Prohibited by state law.
Underwriting: The insurer's evaluation of an applicant's risk to decide whether to issue a policy and at what rate class.
Universal life: Permanent life insurance with flexible premiums and charges deducted monthly from an account value.
Variable life: Permanent life insurance whose cash value is invested in separate-account options the owner chooses. It is a security, and selling it takes a securities license.
Vesting: An agent's right to keep receiving renewal commissions after leaving an upline or insurer, on the conditions the contract sets.
Waiver of premium: A rider under which the insurer pays the premiums while the insured is totally disabled, after an elimination period.
Whole life: Permanent life insurance with a guaranteed death benefit, guaranteed cash values and a level premium.

Important: supplemental education

InsureRamp is a supplemental education platform. It is not a state-approved insurance pre-licensing education provider, and it does not satisfy state-mandated pre-licensing coursework, continuing education, or annuity suitability training requirements. Completing any course here does not license you to sell insurance products. Licensing requirements are set by your state's department of insurance, and you are responsible for meeting them through an approved provider.