Top 25 Life Insurance License Terms and Definitions
February 29, 2020 | Last updated: March 1, 2020
By: Jeffrey Van Blarcom
If you are looking to take the Life Insurance exam and become licensed to sell insurance, here are 25 terms you must know in order to successfully pass that test.
Face amount – The death benefit payable on a life policy; may also be called limit of liability.
Cash value – Money accumulated in a permanent life insurance policy which includes a portion of the premium paid plus interest.
Rider – An added benefit attached to the policy that modifies the coverage and is provided for a small additional premium
Beneficiary – A person named in the policy to receive benefits if the insured dies during the contract.
Insurable interest – The relationship that must exist between the applicant and insured in order for the contract to be valid. This results in a financial or economic loss by the owner of the insured dies and must exist at the time of the application.
Policyowner – The individual who has the ownership rights in a policy. The policyowner and insured are usually the same, but not necessarily. Any changes made to a policy must be approved by the policyowner in writing with his/her signature.
Variable Life – is a fixed-premium Whole Life policy under which the death benefit and/or cash value varies to reflect the investment experience of a separate pool of assets separate account(s) supporting the reserves for the policy
Term insurance is temporary life insurance protection provided for a specified period of time.
Whole life is permanent life insurance protection provided for the insured’s whole life, which is typically designed to mature at insured’s age 100.
Policy Provisions explain characteristics of an insurance contract and are the basis for the contract agreement between the policyowner and the insurance company
Free Look allows the insured/policyowner a specified number of days following receipt of the policy to look it over and if dissatisfied for any reason to return it for a full refund of premium (usually 10 days)
Incontestability clause states that the insurer cannot contest statements contained in the application after the policy has been in force (usually 2 years) including errors, misstatements, and even fraud
Grace Period is a time period after the premium due date and before a policy lapses allowing the owner to make a late premium payment
Assignment is the transfer of ownership rights to another party
Exclusions are conditions stipulated in the contract for which the insurer will not provide coverage.
Mode of Premium Payment stipulates when the premiums are due, frequency of payment (monthly, quarterly, semiannually or annually), and to whom.
Nonforfeiture options are found in policies that accumulate cash values and protect the policyowner against total loss of benefits if the policy should lapse or be canceled.
Annuity is a systematic liquidation of accumulated funds that is designed to protect against outliving one’s retirement benefits.
Contributory – Employees must contribute to the premium payments and at least 75% of all eligible employees must participate
Noncontributory – Employer pays all of the premium with a mandatory 100% of the eligible employees participating
Third-Party ownership – A policy owned by one person insuring the life of another person. The three parties involved in a Third Party Ownership are the policyowner, insured and insurer
Automatic Premium Loan – This provision enables the insurer to automatically borrow from the cash value to cover a premium payment to prevent the contract from lapsing.
Insuring clause – defines who is insured by whom and the amount of benefit/coverage provided by the policy.
Entire Contract clause- defines the scope of the contract which includes the policy, riders, amendments or modifications, and a copy of the application.
Consideration clause – Policyowner must pay something of value (premium) in exchange for the insurer’s promise to pay benefits
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