Life insurance terms in plain language

Buying and applying

Application. The form and questions an insurer uses to decide whether to offer you coverage. What it asks is covered in what the application asks.

Underwriting. The insurer’s assessment of your file. It produces a decision: an offer at standard rates, an offer at a higher rate, an offer with conditions, a postponement, or a decline. See what underwriting is.

Paramedical. A short medical appointment arranged by the insurer, usually at home or at a clinic, involving measurements and often blood and urine samples. Details in the paramedical exam.

Attending physician statement, or APS. A report the insurer requests from your doctor. It is the single most common reason an application takes longer than expected.

Attained age. Your age at a given moment, as opposed to the age you were when the policy was issued. Renewal pricing is usually based on attained age, which is why it jumps.

Rating. An increase applied to a premium to reflect higher assessed risk. Usually expressed as a table rating, or as a flat extra per thousand dollars of coverage. Explained in ratings and substandard offers.

Standard rates. Pricing for someone with no significant health or lifestyle factors. Some insurers also have preferred classes below standard for people in particularly good health.

Postponed. The insurer is not saying no, it is saying not yet, usually because something recent needs time or more information.

The policy itself

Policy owner. The person or entity that controls the policy: pays premiums, names beneficiaries, can cancel it. Often but not always the same person as the life insured.

Life insured. The person whose death triggers the payment.

Beneficiary. Who receives the death benefit. See naming and changing a beneficiary.

Contingent beneficiary. The backup, who receives the money if the primary beneficiary has already died.

Irrevocable beneficiary. A beneficiary who cannot be removed or changed without their written consent. Covered in irrevocable beneficiaries.

Death benefit. The amount paid on death. Also called the face amount or sum insured.

Premium. What you pay for the coverage.

In force. The policy is active and would pay a claim.

Lapse. The policy has ended because premiums stopped. See missed payments and lapse.

Grace period. The window after a missed payment during which the policy still works, commonly around 30 days.

Reinstatement. Restarting a lapsed policy, usually within a limited window and usually requiring fresh health evidence.

Rider. An optional add-on to a policy, such as coverage for a child or a waiver of premium if you become disabled.

Term coverage

Term. Coverage for a set number of years. See what term life insurance is.

Renewable. The policy can continue past the end of the term without new medical evidence, at a much higher price. See renewing term coverage.

Convertible. The policy can be exchanged for permanent coverage without new medical evidence, up to a deadline written into the contract. See converting term to permanent.

Level term. The death benefit stays the same for the whole term. This is the normal shape of Canadian term insurance.

Permanent coverage

Permanent insurance. Coverage designed to last your whole life. See what permanent life insurance is.

Whole life. A permanent policy with a guaranteed death benefit and a guaranteed cash value schedule. See whole life insurance.

Universal life. A permanent policy that separates the insurance cost from an investment account you direct. See universal life insurance.

Term to 100. Permanent coverage with level premiums to age 100 and normally no meaningful cash value. See Term to 100.

Cash value. Money accumulated inside a permanent policy that the owner can access while alive. See cash value and how it builds.

Cash surrender value. What you would actually receive if you cancelled the policy, after any surrender charges.

Participating policy. A whole life policy that shares in the insurer’s participating account results through dividends. See participating policies and dividends.

Dividend. A payment credited to a participating policy. It is not guaranteed and it is not interest.

Paid-up additions. Small amounts of extra permanent coverage bought with dividends, which then earn dividends themselves.

Reduced paid-up. Converting a policy to a smaller amount of fully paid coverage, so no further premiums are due.

Policy loan. Borrowing from the insurer using the policy’s cash value as security. See policy loans.

Adjusted cost basis. A tax figure tracking what a policy has cost against what it has built up. It determines how much of a withdrawal or surrender is taxable. See tax on cash value and policy loans.

No-medical products

Simplified issue. Coverage issued on a short health questionnaire with no exam. See simplified issue.

Guaranteed issue. Coverage issued without health questions, normally with a waiting period and a low maximum. See guaranteed issue.

Graded benefit, or waiting period. A period at the start of a policy during which death from non-accidental causes pays back premiums rather than the full amount. See waiting periods.

Claims and endings

Contestability period. The first two years, during which an insurer can review the application against the medical record if a claim is made. See the contestability period.

Suicide clause. A standard provision under which death by suicide within the first two years generally returns premiums rather than paying the benefit.

Material misrepresentation. Something inaccurate or omitted on an application that would have changed the insurer’s decision. See leaving something off the application.

Replacement. Cancelling or reducing one policy to buy another. Regulated in several provinces because of the risks involved. See replacing an existing policy.

Assignment. Transferring some or all of the rights in a policy to somebody else, often a lender as security for a loan.

Who is who

Agent, broker, advisor. In practice these are used loosely. What matters is whether the person holds a current life insurance licence in your province and how many insurers they can place business with.

Managing general agency, or MGA. A firm sitting between independent advisors and insurers, providing access to products and back-office support.

Insurer, or carrier. The company that issues the policy and pays the claim.