A Term Life Insurance Glossary
Term life insurance is the simplest type of life insurance. It is usually meant to be temporary, covering the insured for a fixed amount of time, with premiums that often increase as the insured ages. Like any other type of life insurance, term life insurance represents a legal contract between the owner of the policy and the insurance company, and like any type of contract, it has a language of its own. Knowing the definitions of common terms can help you understand exactly what you're paying for when you buy term life insurance.
Annual renewable term life Term life insurance that is renewable each year for a fixed period of time, usually 5, 10, 15, 20 or 30 years. The annual premium increases each year, based on the chances of the benefit being paid. In the earliest years, the premium is usually very affordable, but by the end of the term, it may become financially unviable.
Beneficiary The person or persons who will be paid if the person insured by the life insurance policy dies
Cash value The amount of money that is available on the life insurance policy for loans or withdrawals. Term life insurance has no cash value, since it only pays off if the insured dies (or under other conditions named in the insurance policy)
Convertible term insurance Term insurance that can be converted to whole life insurance by the owner of the policy without providing evidence of insurability
Dividend A cash payment that is a return on part of the premiums paid by the owner of the policy based on a number of variables. Term life insurance does not pay dividends.
Face Value The amount of the death benefit that will be paid, not including additional amounts that will be payable in the case of accidental death, or under special provisions
Insurability Acceptability of the insured person to the insurance company. In term life insurance, insurability is often not an issue, and proving insurability may not be necessary when converting term life insurance to whole life insurance.
Insured The person in whose name the policy is issued. The insured may or may not be the owner of the policy. If the insured dies, term life insurance pays a benefit to the beneficiary/ies
Insurer The insurance company
Level Term Life Insurance A version of term life insurance where the premium is guaranteed to remain the same for a certain period of time - often 10, 15, 20 or 30 years. The longer the level term, the more expensive the premiums are, since the older years are averaged into the overall premium.
Policy owner The person who pays the premiums on the insurance policy
Premiums Payments made to the life insurance company to keep a policy in force
Renewable Term Life Insurance that is in force for a stated period, and can be renewed by the policy holder (or owner) at the end of each term for a limited number of terms without proving insurability of the insured