Glossary of Insurance Planning Terms

Understanding insurance terminology is essential for evaluating policies, comparing coverage options, and making informed decisions about protection planning. This glossary covers the most important terms you will encounter when purchasing and managing insurance products.

A

Accelerated Death Benefit: A life insurance policy provision that allows the policyholder to receive a portion of the death benefit while still living if diagnosed with a terminal illness, typically with a life expectancy of 12-24 months.

Actual Cash Value (ACV): A method of valuing insured property that equals the replacement cost minus depreciation; an older roof would be valued at less than a new roof of the same type.

Any Occupation: A disability insurance definition that considers you disabled only if you cannot perform any job for which you are reasonably qualified by education, training, or experience.

B

Beneficiary: The person or entity designated to receive the proceeds of a life insurance policy or other account upon the death of the insured or account owner.

Benefit Period: The maximum length of time that disability insurance benefits will be paid; common periods are 2 years, 5 years, or to age 65.

C

Cash Value: The savings component of a permanent life insurance policy that accumulates on a tax-deferred basis and can be accessed through withdrawals or policy loans.

D

Death Benefit: The amount paid to beneficiaries upon the death of the insured under a life insurance policy.

Deductible: The amount the policyholder must pay out of pocket before insurance coverage begins; a $1,000 deductible means you pay the first $1,000 of a covered loss.

E

Elimination Period: The waiting period between when a disability begins and when disability insurance benefits start being paid; common periods are 30, 60, 90, or 180 days.

H

Health Class: A rating category assigned during life insurance underwriting based on the applicant's health, lifestyle, and medical history; common classes include Preferred Plus, Preferred, Standard Plus, Standard, and Substandard (rated).

I

ILIT (Irrevocable Life Insurance Trust): A trust designed to own life insurance policies outside of the insured's estate, potentially avoiding estate taxes on the death benefit proceeds.

L

Liability: Legal responsibility for damages or injuries caused to others; liability insurance pays for covered claims and legal defense costs.

Long-Term Care Insurance: Coverage that pays for assistance with activities of daily living (bathing, dressing, eating) or cognitive impairment, typically in a nursing home, assisted living facility, or at home.

M

Medicare Advantage: Private health insurance plans (Part C) that provide Medicare benefits and often include additional coverage such as prescription drugs, dental, and vision; an alternative to Original Medicare.

Medigap: Supplemental insurance policies sold by private companies to cover costs that Original Medicare does not pay, such as copayments, coinsurance, and deductibles.

O

Own Occupation: A disability insurance definition that considers you disabled if you cannot perform the duties of your specific occupation, even if you could work in another field.

P

Premium: The amount paid to an insurance company for coverage, typically on a monthly, quarterly, or annual basis.

R

Replacement Cost: A method of valuing insured property at the cost to replace it with a similar item at current prices, without deduction for depreciation.

Rider: An optional addition to an insurance policy that provides additional coverage or modifies the base policy terms, usually for an additional premium.

T

Term Life Insurance: Life insurance that provides a death benefit for a specified period (term), such as 10, 20, or 30 years, with no cash value accumulation; premiums are typically level for the term period.

U

Umbrella Policy: Liability insurance that provides coverage above the limits of underlying policies (homeowners, auto) and may cover claims excluded by those policies.

Underwriting: The process by which an insurance company evaluates an applicant's risk and determines whether to offer coverage and at what premium rate.

Universal Life Insurance: A type of permanent life insurance with flexible premiums and death benefits, where excess premium payments accumulate as cash value earning interest at a rate set by the insurer.

W

Waiver of Premium: A rider that waives premium payments if the insured becomes totally disabled, keeping the policy in force without payment during the disability period.

Whole Life Insurance: A type of permanent life insurance with fixed premiums, a guaranteed death benefit, and cash value that grows at a guaranteed rate; may also pay dividends if issued by a mutual insurance company.