Resources
Insurance Glossary
Understanding insurance terminology is the first step toward making informed decisions. This glossary covers the most common terms you'll encounter when exploring coverage options.
A
Accidental Death Benefit
An additional death benefit paid if the insured dies as a result of an accident rather than natural causes or illness. Often included as a rider to a life insurance policy.
Actuary
A professional who analyzes statistical data to calculate insurance risks and premiums. Actuaries use mathematics, statistics, and financial theory to assess the probability of events and their financial impact.
Annuity
A financial product that provides a series of payments at regular intervals, typically used for retirement income. Can be immediate (payments begin right away) or deferred (payments begin at a future date).
Application
The formal document completed when applying for insurance coverage. It includes personal information, health history, and other details used by underwriters to assess risk and determine premiums.
Assignment
The legal transfer of ownership or benefits of an insurance policy from one party to another. Commonly used when a policy is assigned as collateral for a loan.
B
Beneficiary
The person or entity designated to receive the death benefit from a life insurance policy. Can be revocable (changeable) or irrevocable (cannot be changed without the beneficiary's consent).
Benefit Period
The length of time during which benefits will be paid under a disability or long-term care policy. Common benefit periods include 2 years, 5 years, to age 65, or lifetime.
Broker
A licensed insurance professional who represents the client rather than any single insurance company. Brokers can compare products from multiple carriers to find the best fit for their clients.
Buy-Sell Agreement
A legally binding agreement that determines what happens to a business owner's share if they die, become disabled, or leave the business. Often funded by life insurance.
C
Cash Surrender Value
The amount of money a policyholder receives if they cancel or 'surrender' a permanent life insurance policy. Equals the cash value minus any surrender charges.
Cash Value
The savings component of a permanent life insurance policy that grows over time. Can be borrowed against or withdrawn, though this may reduce the death benefit.
Claim
A formal request to an insurance company for payment of benefits under the terms of a policy. In life insurance, this is typically a death claim; in health insurance, it may be for medical expenses.
COBRA
Continuation of Benefits. In Canada, this refers to the ability to continue group benefits coverage for a period after leaving employment, though specific rules vary by province and plan.
Contestability Period
The time period (typically two years) during which an insurance company can investigate and potentially deny a claim based on misrepresentation on the application.
Conversion Privilege
A feature in term life insurance policies that allows the policyholder to convert to a permanent policy without providing evidence of insurability. Subject to time limits and conversion options.
Critical Illness Insurance
Insurance that pays a tax-free lump sum upon diagnosis of a covered critical illness (such as cancer, heart attack, or stroke) and survival of a waiting period.
D
Death Benefit
The amount paid to beneficiaries upon the death of the insured. In life insurance, this is typically tax-free in Canada.
Deductible
The amount the policyholder must pay out-of-pocket before insurance benefits begin. Common in health, dental, and disability insurance policies.
Disability Insurance
Insurance that replaces a portion of income (typically 60-70%) if the insured becomes unable to work due to illness or injury.
Dividend
A return of excess premium paid to policyholders of participating (par) life insurance policies. Dividends are not guaranteed and depend on the insurance company's financial performance.
E
Elimination Period
The waiting period between when a disability begins and when benefits start being paid. Also called a 'waiting period.' Common elimination periods are 30, 60, 90, or 120 days.
Estate
All assets and liabilities left by a deceased person. Life insurance can be used to provide liquidity to an estate, pay estate taxes, or equalize inheritances among beneficiaries.
Evidence of Insurability
Proof that an applicant is an acceptable risk for insurance. May include medical exams, health questionnaires, and review of medical records.
Exclusion
Specific conditions, circumstances, or activities that are not covered by an insurance policy. Common exclusions include pre-existing conditions, high-risk activities, or self-inflicted injuries.
F
Face Amount
The death benefit amount stated on the face of a life insurance policy. Also called the face value or coverage amount.
Final Expense Insurance
A type of whole life insurance with smaller face amounts designed to cover funeral costs and other end-of-life expenses. Often has simplified underwriting.
FSRA
Financial Services Regulatory Authority of Ontario. The provincial regulator responsible for overseeing insurance, pensions, credit unions, and other financial services in Ontario.
G
Grace Period
A period of time (typically 30-31 days) after a premium due date during which payment can be made without the policy lapsing. Coverage continues during the grace period.
Group Insurance
Insurance coverage provided to members of a group (typically employees of a company) under a single master policy. Usually less expensive than individual coverage and may have limited or no medical underwriting.
Guaranteed Issue
Insurance that is issued without any medical questions or underwriting. Coverage amounts are limited and premiums are higher than medically underwritten policies.
Guaranteed Renewable
A policy provision that guarantees the insurance company must renew the policy as long as premiums are paid, regardless of changes in the insured's health.
H
Health Spending Account (HSA)
A tax-effective arrangement allowing incorporated business owners to pay for eligible medical expenses with pre-tax dollars. The business deducts contributions; the individual receives benefits tax-free.
I
Incontestability Clause
A provision stating that after a policy has been in force for a certain period (usually two years), the insurer cannot contest the validity of the policy based on misstatements in the application.
Insurable Interest
A legal requirement that the policyholder must suffer a financial loss if the insured event occurs. For life insurance, insurable interest must exist at the time of application.
Insured
The person whose life or health is covered by an insurance policy. The insured and the policy owner may be different people.
K
Key Person Insurance
Life or disability insurance purchased by a business on the life of a key employee, owner, or partner. The business is the owner and beneficiary of the policy.
L
Lapse
The termination of an insurance policy due to non-payment of premiums. A lapsed policy provides no coverage and may have tax consequences if it had accumulated cash value.
Level Premium
A premium that remains the same throughout the life of the policy. Common in term life insurance for the initial term period.
Living Benefit
A provision allowing access to a portion of the death benefit while the insured is still alive, typically upon diagnosis of a terminal illness.
Long-Term Care Insurance
Insurance that covers the cost of care when someone cannot perform basic activities of daily living due to illness, disability, or cognitive impairment.
M
Medical Information Bureau (MIB)
An organization that collects and shares medical information among insurance companies to detect fraud and misrepresentation on insurance applications.
Mortality Table
A statistical table showing the probability of death at each age. Used by actuaries to calculate life insurance premiums.
Mortgage Insurance
Insurance designed to pay off a mortgage balance upon the death of the insured. Can be purchased through a lender (creditor insurance) or as a personal term life policy.
N
Non-Medical Insurance
Life insurance that can be obtained without a medical examination. May still require health questions. Also called simplified issue or no-exam insurance.
Non-Participating Policy
A life insurance policy that does not pay dividends to policyholders. Premiums are typically lower and more predictable than participating policies.
O
Own Occupation
A definition of disability that considers the insured disabled if they cannot perform the duties of their specific occupation, even if they could work in another capacity.
P
Paid-Up Insurance
Life insurance that remains in force without further premium payments. Can occur when a policy is 'paid up' after a certain period or when dividends are used to purchase additional coverage.
Paramedical Exam
A medical examination conducted by a nurse or technician, typically including height, weight, blood pressure, and collection of blood and urine samples.
Participating Policy
A life insurance policy that pays dividends to the policyholder based on the insurance company's financial performance. Dividends are not guaranteed.
Policy
The legal contract between the insurance company and the policyholder that outlines the terms, conditions, and benefits of insurance coverage.
Policy Loan
A loan taken from the cash value of a permanent life insurance policy. If not repaid, the loan amount plus interest is deducted from the death benefit.
Pre-Existing Condition
A health condition that existed before insurance coverage began. May be excluded from coverage or subject to waiting periods, depending on the type of insurance.
Premium
The amount paid to an insurance company for coverage. Can be paid monthly, quarterly, semi-annually, or annually.
R
Reinstatement
The restoration of a lapsed policy to active status. Usually requires payment of back premiums and possibly evidence of insurability.
Renewable Term
Term life insurance that can be renewed at the end of the term without evidence of insurability, though premiums will increase based on the insured's attained age.
Rider
An addition to an insurance policy that modifies coverage or adds benefits. Common riders include waiver of premium, accidental death benefit, and critical illness riders.
S
Stability Period
In travel insurance, the period during which a pre-existing condition must be 'stable' (no changes in treatment, symptoms, or medication) for that condition to be covered.
Substandard Risk
An applicant who represents a higher-than-average risk due to health, occupation, or lifestyle factors. May be offered coverage at higher premiums (rated) rather than declined.
Super Visa
A Canadian visa allowing parents and grandparents of Canadian citizens or permanent residents to stay in Canada for up to five years. Requires proof of private medical insurance.
Surrender
The cancellation of a permanent life insurance policy in exchange for its cash surrender value. May have tax implications.
T
Term Life Insurance
Life insurance that provides coverage for a specified period (term). If the insured dies during the term, the death benefit is paid. If the term expires, coverage ends.
U
Underwriting
The process by which an insurance company evaluates an applicant's risk and determines whether to offer coverage, and at what premium.
Universal Life Insurance
A type of permanent life insurance with flexible premiums and adjustable death benefits. Includes a cash value component that earns interest.
W
Waiting Period
See Elimination Period. The time between when a covered event occurs and when benefits begin to be paid.
Waiver of Premium
A rider that waives premium payments if the insured becomes disabled. The policy remains in force without the insured having to pay premiums.
Whole Life Insurance
Permanent life insurance with level premiums and a guaranteed death benefit for the insured's entire life. Builds cash value over time.
Have Questions About a Term?
Insurance can be complex. If you'd like clarification on any term or how it applies to your situation, I'm happy to help explain.
Ask a Question