Welcome to the Life Insurance Canada Glossary. Here you will find the definitions of most the insurance terms found on our website.
A: Life Insurance Glossary
Accelerated death benefit rider
Also known as a “living benefit rider”, an accelerated death benefit is a rider that can be added to a life insurance policy. It allows the policy holder to access part of their policy death benefit if they have been diagnosed with a terminal illness. The funds are typically used for medical treatment and care.
Accidental death and dismemberment rider
Accidental death and dismemberment (AD&D) is a rider that can be added to a life insurance policy. AD&D issues a benefit if the insured person dies accidentally or suffers from dismemberment, such as the loss of a limb or the loss of use of a body part.
Accrued interest is interest that has been generated from a life insurance policy but that has not yet been paid out to the policy holder.
Actual age is a method that life insurance providers use to calculate the age of a life insurance applicant. Using this method, your age is determined by your most recent birthday. Another method used is “nearest age”, which determines your age based on whatever birthday is closest to the present date.
Actuarial tables are vital to life insurance companies. Sometimes known as mortality tables, they indicate the statistical probability of death of people based on factors like life expectancy, age, gender, health, and more.
An administrative expense refers to a business expense that is not part of the company’s main operations, such as production and sales. Administration expenses include things like salaries, benefits, insurance, etc.
Adverse selection refers to when sellers and buyers do not have the same information, such as a salesperson knowing the value of a product is less than its cost. In life insurance, adverse selection can include when an applicant does not disclose relevant information to the insurance provider.
A life insurance agent is responsible for selling life insurance policies to people and working with clients to process life insurance claims. In contrast to a life insurance broker, an agent works on behalf of a life insurance company.
When naming a beneficiary for a life insurance policy, there is typically a primary beneficiary and an alternate (or contingent) beneficiary. An alternate beneficiary is the person who receives the policy’s death benefit if the primary beneficiary is unable to claim it.
Annual renewable term life insurance
Annual renewable term (ART) life insurance is a form of term life insurance that offers one-year coverage that can be renewed every year. Because premiums increase with every annual renewal, ART life insurance is best for short-term coverage needs.
An annuity is a financial strategy offered by banks and insurance companies that invests a customer’s money in order to generate an income stream down the line. Annuities are most commonly used to bolster retirement funds.
In the context of life insurance, an applicant is the person applying for life insurance coverage.
A life insurance assignment enables a policy holder to transfer control of their life insurance policy to a third party—typically a close relative.
Attending Physician Statement (APS)
An Attending Physician Statement (APS) is a document issued by life insurance companies that must be filled in by a physician, providing an overview of a life insurance applicant’s health and medical history.
Automatic Premium Loan
An automatic premium loan is primarily associated with permanent life insurance policies with a cash value. It enables life insurance providers to deduct any outstanding premiums from the policy’s cash value.
On life insurance applications, you may come across the term avocation. An avocation is simply a hobby, or an activity outside of work that you participate in. Certain avocations can influence your life insurance premium rates.
B: Life Insurance Glossary
Backdating is a strategy life insurance applicants can use to lower their premiums with life insurance companies that use your nearest birthday to determine your age. If you are 29.5 years old, you can use backdating to secure a premium for a 29-year-old. You just have to pay premiums for the months that elapsed from your insurance age being 29.
A beneficiary is the person (or entity) that is named on a life insurance policy that will receive the death benefit when the insured dies. Typically, a beneficiary is a spouse, dependent or close relative, though organizations can also be named as beneficiaries.
Burial insurance, also known as final expense insurance, is a type of whole life insurance policy with a modest benefit (usually under $25,000) that is intended to cover funeral and burial costs.
C: Life Insurance Glossary
Capital gains tax
Capital gains tax is a tax paid on the profit generated when an investment is sold. If you terminate a permanent life insurance policy, you will pay capital gains on any income exceeding the policy’s adjusted cost base.
Cash surrender value
If you terminate a permanent life insurance policy after a set period of time, the life insurance provider will pay you a sum of money, the cash surrender value. This amount is the cash value of the life insurance policy minus any surrender and administration fees.
Cash value life insurance
Cash value life insurance refers to a type of permanent life insurance that comes with a cash value. The cash value increases over time as the policy holder pays into their policy and can be used as collateral for loans or to cover premiums.
Child protection rider
A child protection rider can be added to a term life insurance policy to extend coverage to your child or children. With a child protection rider, the policy holder will receive a small death benefit should their child die within the coverage period.
In the context of life insurance, a claim is a request submitted by a beneficiary to the insurance provider when the insured dies to release the death benefit. Essential documents required for a life insurance claim are a death certificate, policy document, and claim form.
A collateral assignment is when a policy holder appoints a third party (usually a lender) as the primary beneficiary of their permanent life insurance policy in order to take out a loan.
In the life insurance industry, company ratings are carried out by independent groups and rank insurance providers based on their financial health. AM Best is one of the most popular online companies for life insurance company ratings.
Concealment refers to when a life insurance applicant does not divulge important information to the life insurance provider, including smoking status, health, avocations, and more. Concealment can lead to a terminated or voided life insurance policy.
A contestability period is a fraud-management clause in life insurance policies. It consists of a one or two-year period in which life insurance companies can review your coverage and deny potential claims.
A contingent beneficiary, also known as alternate beneficiary, is the person or entity who inherits a life insurance policy death benefit if the primary beneficiary can not longer claim it.
Conversion right, sometimes called conversion privilege, is a clause in group life insurance policies that lets the insured switch to an individual life insurance policy without having to undergo a medical exam and underwriting.
A convertible life insurance policy is a type of term life insurance that allows the policy holder to convert their coverage to a permanent life insurance policy without having to apply for a new policy.
In life insurance, coverage refers to the size of a policy. In other words, how much the death benefit is worth. A life insurance policy with $150,000 in coverage will issue a $150,000 death benefit if the insured dies within the coverage period.
Critical Illness Rider
A critical illness rider is an optional add-on for life insurance policies that pays out a tax-free lump sum if the insured is diagnosed with or suffers from a covered critical illness, such as a stroke or heart attack.
D: Life Insurance Glossary
A death benefit is the tax-free lump sum paid to a beneficiary when a person with life insurance coverage dies. The amount of the death benefit is determined by the size of policy coverage.
In life insurance, the declaration refers to the first pages of a life insurance policy, which include detailed information about the insured and the policy in question. A life insurance declaration can be used as proof that you are insured.
Decreasing term life insurance
Decreasing term life insurance is a type of policy that offers a fixed premium rate over a set term with a decreasing death benefit. Because of the decreasing death benefit, these types of policies are typically cheaper than traditional term life insurance.
Disability income rider
A disability income rider is an optional add-on for life insurance policies that offers monthly financial payments (usually worth a portion of the life insurance coverage) if the insured should become disabled and lose the ability to generate income.
Disability Waiver of Premium
A disability waiver of premium is an optional rider that can be added to a life insurance policy. With this type of rider, policy holders are no longer required to pay their life insurance premiums if they should suffer from a serious injury or disability.
Dividends are essentially money paid to a shareholder based on the performance of their investment. In life insurance, dividends are issued to participating life insurance policy holders based on investment returns, interest rates, and the insurance company’s financial performance.
E: Life Insurance Glossary
The effective date refers to the precise date and time that a life insurance policy becomes active and coverage starts.
An estate indicates what a person is worth based on their assets, including real estate, personal property, cash, securities, etc. When a person dies, the estate is used to pay any debts or taxes owed by the deceased.
Estate administration tax
An estate administration tax, also known as probate tax, is a levy that is placed on the value of the deceased’s estate. This tax exists in Ontario and is among the only taxes to be paid on estates.
Evidence of insurability
Evidence of insurability (EOI) is a document that proves the state of health of the insurance applicant. EOI documents consist of detailed medical questionnaires.
In a life insurance policy, an exclusion is a cause of death that is not covered by insurance. For example, suicide can be listed as an exclusion, meaning that beneficiaries will not be entitled to the policy’s death benefit if the insured dies by suicide.
F: Life Insurance Glossary
The face value of a life insurance policy refers to the overall worth of the policy. This value is equated with the value of the death benefit.
Final expense life insurance
Final expense life insurance, also known as burial insurance, is a type of whole life insurance policy with a modest benefit (usually under $25,000) that is intended to cover funeral and end-of-life costs.
Fixed amount option
If a fixed amount option is selected, a life insurance beneficiary is paid the benefit as a series of installments, which end when the life insurance principal and interest are depleted. With this option, the life insurance policy continues to accrue interest.
Fixed period option
Similar to a fixed amount option, with a fixed period option a life insurance beneficiary is paid the benefit as a series of installments, which end when the life insurance principal and interest are depleted. With this option, the life insurance policy continues to accrue interest.
Free look provision
A free look provision is a set period of time in which a life insurance policy holder can terminate their policy without any penalties or fees.
G: Life Insurance Glossary
The grace period is an amount of time—typically 30 days—after a premium payment is due in which insurance providers will accept a late payment without risk of your policy lapsing.
Group life insurance coverage is typically provided by employers to their workers as part of a broader benefits package. This type of coverage, which is tied to employment, is typically inexpensive or free for the insured and has a limited benefit.
Guaranteed issue is a type of permanent life insurance policy that does not require any medical exam or questionnaire. While this type of policy typically has high premiums and a modest death benefit, it can be a good option for people with compromised health.
Guaranteed universal life insurance
Guaranteed universal life insurance (GUL) is a type of permanent life insurance policy that offers a fixed benefit and premium rates. GUL policies typically have a minimal cash value and tend to have cheaper premium rates than other universal life insurance policies.
H: Life Insurance Glossary
In insurance terms, hazard refers to a circumstance or event that can increase risk. There are three types of hazard that insurance companies look out for: physical hazards (including actions such as smoking), moral hazards (including wrongful conduct or false claims), and morale hazards (including reckless behaviours).
I: Life Insurance Glossary
A life insurance illustration is a document used for permanent life insurance policies that forecasts the performance of a particular policy based on different variables. Life insurance illustrations can be helpful for policy holders in deciding between different life insurance policies.
Incontestable clause, or incontestability clause, is a provision in life insurance policies that limits the period during which a life insurance provider can contest a claim. After this period—usually two years—a life insurance provider can not contest a claim for any reason other than unpaid premiums.
In life insurance, insurable interest is needed in order for someone to purchase a life insurance policy for another person. Insurable interest essentially means that the policy holder would suffer financially if the insured person died.
Sets out minimum requirements for insurance companies who are wanting to operate in the life insurance market in Canada (e.g. amount of capital that is to be held in reserve for the ability to pay for claims).
An insurance policy is a contract signed between an insurance provider and a policy holder. As long as the policy holder maintains their side of the contract (paying premiums), the insurance provider will pay a lump sum if a covered event occurs in the policy period.
The insured is the person who is covered by a life insurance policy. Often, the insured is also the policy holder, though not necessarily. If the insured dies during the life insurance coverage period, their beneficiary will receive a death benefit.
The insurer is the life insurance provider. This is the insurance company or financial institution that will pay a death benefit should the insured die within the coverage period.
Beneficiaries can choose an interest option instead of a lump-sum death benefit payment. With the interest option, the death benefit principal remains with the insurance company and continues to gain interest. The beneficiary receives interest payments at set intervals and can withdraw from the death benefit.
Intestate refers to when a person passes away without having drawn up a legal will. In this case, the allocation of a person’s assets and estate are determined through the probate process.
An irrevocable beneficiary is one of two types of beneficiary in a life insurance policy. Unlike a revocable beneficiary, who can be removed as beneficiary by the policy holder, an irrevocable beneficiary must give their consent for the beneficiary or the policy terms to be changed.
Issue age is the age of the insurance policy holder on the date their policy becomes active. Issue age is typically rounded to the policy holder’s nearest birthday.
J: Life Insurance Glossary
Joint life insurance
Joint life insurance is a category of policy that covers two people (typically spouses) under the same policy. There are two main types of joint life insurance: first-to-die and last-to-die. With first-to-die joint life insurance, the death benefit is issued when the first insured person dies. With last-to-die joint life insurance, the death benefit is paid when both insured people die.
L: Life Insurance Glossary
If a life insurance policy lapses, it means the policy has ended and the policy holder and beneficiaries are no longer entitled to benefits. Policies may lapse if a policy holder fails to make a premium payment.
Level term life insurance
Level term life insurance is a type of term life insurance where premium rates remain fixed over the coverage period but benefits have the potential to increase. For this reason, premium rates are typically higher than traditional term life insurance policies.
Life income option
If a life insurance beneficiary chooses the life income option, the death benefit is converted into a life annuity rather than paid out as a lump sum. This means that the beneficiary receives payments throughout their life (with payment amounts determined by the size of benefit and beneficiary life expectancy).
Life insurance agent
A life insurance agent is a licensed professional that sells life insurance policies on behalf of a life insurance company.
Life insurance classification
Life insurance classifications are used by life insurance providers to indicate the level of risk of their clients, which influences premium rates. Classifications are determined based on factors like age, health, lifestyle, occupation, and more. There are five main life insurance classification groups: preferred plus, preferred, standard plus, standard, and substandard.
Life insurance company
A life insurance company is a company that sells life insurance policies. Customers pay regular premiums to the life insurance company to keep a policy active and the life insurance company pays a benefit when the insured person dies or another covered event from their policy occurs.
Unlike a death benefit, which is paid when an insured person dies, a living benefit is paid by a life insurance company while they are still alive. Living benefits are typically available through life insurance riders, such as critical illness insurance or long-term care rider.
A living will is a legal document that stipulates what kind of end-of-life medical care a person wants or consents to if they are no longer able to communicate their wishes.
Long-term care rider
A long-term care rider is an optional add-on for life insurance policies that releases a portion of the death benefit while the insured person is still living to pay for long-term care.
M: Life Insurance Glossary
A material misrepresentation is an omission or false information given in a life insurance policy on the part of the insured person or policy holder. Material misrepresentation is considered a breach of contract and can result in a life insurance policy being terminated or a claim being denied.
Maturity date indicates the date at which a permanent policy ends. Maturity dates are typically beyond the life expectancy of the insured person. If the maturity date is reached, however, the policy ends and the maturity value is paid to the policy holder.
Medical Information Bureau
The Medical Information Bureau (MIB) is a membership cooperation made up of hundreds of insurance providers in North America. The MIB provides underwriting services as well as information to enable underwriting processes.
In the context of insurance, a medical report is an official document that details a patient’s medical condition and overall health. Medical reports are issued by medical professionals and are needed for certain life insurance policy applications.
Misstatement of age
Most life insurance policies include a misstatement of age clause, which enables the life insurance provider to adjust insurance premiums and policy value if the insured’s age was misreported at the time of application.
Mortgage protection insurance
Mortgage protection insurance is a type of decreasing life insurance policy that pays out a benefit large enough to cover the policy holder’s remaining mortgage payments should they die. While premium rates for mortgage protection insurance remain fixed over the mortgage term, the death benefit decreases in value as the mortgage is paid off.
N: Life Insurance Glossary
No medical life insurance
No medical life insurance is a type of life insurance policy that does not require applicants to undergo a medical exam. No medical life insurance policies are beneficial for people who may be excluded from traditional life insurance due to pre-existing conditions, but typically have higher premium rates.
A non-forfeiture option is a clause in some life insurance policies that states that the insured will receive at least a partial benefit or premium return if a policy lapses due to a missed premium payment.
Non-participating life insurance policy
Non-participating life insurance is a type of policy where the insured does not participate in the life insurance company’s business and thus does not receive periodic dividend payments.
Non-smoker rates refer to the mortality premium rates that non-smokers qualify for. These rates are typically lower than smoker life insurance premiums.
O: Life Insurance Glossary
Open enrolment is a period every year (usually about two weeks) where employees have the opportunity to make changes to their work benefits, including life insurance coverage.
A policy owner, or policy holder, is the person who has purchased and pays premiums for a life insurance policy. Often, the policy owner is either the insured or the beneficiary.
P: Life Insurance Canada Glossary
Whole life insurance policy holders have the option of purchasing paid-up additions to their existing policy. Paid-up additional insurance is purchased as a rider using dividends from the original policy.
A paramedical exam is a type of medical examination required by insurance companies for life insurance applications. It includes a basic physical exam (height, weight, blood pressure) and sometimes a blood test, urine sample, X-ray, etc.
Participating insurance company
A participating insurance company offers participating insurance, also known as with-profit insurance, that pays dividends to policy holders based on the financial performance of the insurance company.
Permanent life insurance
Permanent life insurance is a category of life insurance that lasts for the entirety of the insured’s life. Permanent life insurance policies, such as whole life insurance and universal life insurance, often come with an investment or savings component.
In life insurance, a policy illustration is a non-binding document provided to new policy holders that illustrates the details of and forecasts the performance of a particular policy based on different variables.
A policy loan is issued by life insurance companies to permanent life insurance policy holders. This type of loan uses the life insurance policy’s cash value as collateral.
The money that is paid out from a policy at the time of a claim. Generally, these amounts are not taxed and paid out tax-free to the beneficiary.
A policy holder is the person that owns a life insurance policy. The policy holder, also known as policy owner, is typically the insured person or the beneficiary.
Pre-existing health condition
A pre-existing health condition is a medical condition or injury that a person is diagnosed with or has sought treatment for before they apply for a life or health insurance policy. Pre-existing health conditions are often long-term and can influence premium rates.
Preferred rate is the category of lowest rates for life insurance premiums. Typically, non-smokers in good health will have access to preferred rates for insurance policies.
A premium is the money paid by the policy holder to an insurance company for a policy. The cost of premiums varies depending on several factors, including age, policy size and type, health, occupation, and smoking status. If a premium payment is missed, the policy is at risk of lapsing.
The primary beneficiary on a life insurance policy is the first person to receive the death benefit when the insured dies. If the primary beneficiary is not able to receive the benefit, the contingent beneficiary will.
Private mortgage insurance
Private mortgage insurance (PMI) is a form of insurance that is often required if a home buyer makes a downpayment of under 20%. This type of insurance is designed to protect the lender, not the mortgage holder.
Q: Life Insurance Glossary
An insurance quote is the estimated cost of premiums for a given insurance policy based on certain factors like size of policy, applicant’s age, and general health.
R: Life Insurance Glossary
A rated policy is a type of life insurance policy with higher premiums as a consequence of the insured’s occupation or hobbies. These types of policy can also include certain exclusions.
Life insurance companies are given a rating based on their performance and financial standings. These ratings are usually given by independent organizations.
Reduced paid-up insurance
Reduced paid-up insurance is an option for whole life insurance policy owners. It gives them the ability to stop premium payments and convert their policy’s existing death benefit to a guaranteed death benefit worth the cash value of the original policy.
Reinstatement refers to when a lapsed or terminated life insurance policy’s coverage is re-activated. In some cases, the insured person may have to provide updated medical records and repay outstanding premiums.
Renewable term insurance
Renewable term insurance is a type of term life insurance policy that includes a renewability clause. This clause enables the policy holder to extend coverage once the initial term is up without having to apply for a new policy. Premiums do go up with every renewal.
In life insurance, replacement refers to when a policy holder purchases a new policy after letting an existing policy lapse or expire.
Rescission right, or right of rescission, enables policy holders to cancel their life insurance policy and be refunded any premiums within a set period after signing the policy contract. The rescission window is typically under two weeks.
Return of premium rider
A return of premium rider is an optional add-on for term life insurance policies that effectively refunds all premiums paid to the policy holder if the insured person outlives the term. This rider increases the cost of term life insurance premiums.
A revocable beneficiary is a type of life insurance beneficiary that can be changed or removed from the policy at any time by the policy owner. This is opposed to an irrevocable beneficiary, who cannot be removed without giving their consent.
Riders refers to additional coverage that can be added to life insurance policies. For example, return of premium rider, disability rider, long-term care rider, and more.
Life insurance companies use risk classification to identify the risk levels of insurance applicants. Risk classification is determined by several factors, including age, health, family health, occupation, hobbies, etc. There are five main classification groups: preferred plus, preferred, standard plus, standard, and substandard.
S: Life Insurance Glossary
A settlement, or life settlement, is the sale of a life insurance policy to a third party. The sale is typically worth more than the policy’s surrender value but less than the death benefit. The third party ultimately receives the death benefit when the insured dies.
Simplified issue life insurance
Simplified issue life insurance is a type of no medical life insurance that provides modest permanent coverage. Simplified issue life insurance is a good option for those who don’t qualify for traditional or term life insurance.
Standard risk is a classification for people who are deemed to pose a normal amount of risk for insurance companies. A person who qualifies as standard risk will be eligible for standard premium rates.
Substandard risk is a classification for people who are riskier to insure due to their age, occupation, health, hobbies, etc. A person who qualifies as substandard risk may have to pay higher premiums or have limits on their coverage.
The suicide clause is a provision in many life insurance policies that states if an insured person commits suicide within the first two years of their policy, the life insurance company will not pay the death benefit to the beneficiary. They may, however, receive a return of premiums.
The total value of the life insurance coverage which is defined under the life insurance policy.
A supplementary contract is a formal agreement made between a life insurance company and the policy holder or beneficiary. A supplementary contract dictates how a life insurance policy (including death benefit and cash value if applicable) will be paid.
Surrender, in insurance terms, simply means to terminate or cancel an existing policy. The terms of surrendering a policy will depend on the life insurance policy in question.
Survivor protection is the benefit (monetary funds) that life insurance provides to the beneficiaries of the policy.
Survivorship life insurance
Survivorship life insurance is the same as last-to-die joint life insurance. With this type of insurance, two people can be insured under the same policy and the death benefit is issued when both parties have died.
T: Life Insurance Glossary
In life insurance, a term is the length of time that a term life insurance policy is active. For instance, a 10-year policy has a 10-year term.
Term conversion rider
A term conversion rider is an option for term life insurance policies that enables the policy holder to convert their coverage to permanent life insurance without undergoing additional medical exams or underwriting process.
Term date refers to the day that a term life insurance policy expires.
Term life insurance
Term life insurance offers coverage over a set period of time (for instance 10, 20, or 30 years). With term life insurance, the policy holder pays fixed premiums and is guaranteed a death benefit if the insured dies within the coverage period.
Term to 100 (T100)
Term to 100 (T100) is a form of life insurance that offers lifelong coverage like a permanent life insurance policy but does not offer a cash value component, like term life insurance. Also like term life insurance, premiums are fixed for the duration of the policy. If you turn 100 with T100 life insurance, you are no longer required to pay premiums.
Time of payment of claims
Time of payment of claims is a provision in accident and health insurance policies that ensures the insurance company pays the benefit within 30 days of a claim being filed unless there is need for additional documents.
Traditional life insurance
Traditional life insurance is another name for whole life insurance. It is a type of permanent life insurance that provides lifelong coverage and a guaranteed death benefit as long as premiums are paid. Traditional life insurance also includes a cash value component, which increases as premiums are paid.
A life insurance trust is a tool used in estate planning. A trust can be named as beneficiary of a life insurance policy, in which case the death benefit is placed into the trust and is managed and distributed based on the terms of the trust.
U: Life Insurance Glossary
Underwriters work on behalf of insurance companies and analyze multiple factors to determine the level of risk that comes with insuring a particular person.
Underwriting is the process used by insurance companies to understand and assess an insurance applicant’s level of risk. For life insurance, underwriters look at factors like age, health, and occupation to determine the risk of early death. The underwriting process influences policy approval as well as coverage amount and premium rates.
Universal life insurance
Universal life insurance (UL) is a type of permanent life insurance policy that includes an optional investment component. With UL, policy holders can choose whether to pay fixed premiums for life or annually increasing premiums. Without the investment component, UL is among the most affordable options for permanent life insurance.
V: Life Insurance Glossary
Variable life insurance
Variable life insurance is a type of permanent life insurance policy that includes a death benefit and an investment component. With variable life insurance, policy holders can take out loans from the policy’s cash value with certain tax advantages and can have multiple investment accounts.
Variable universal life insurance
Variable universal life insurance (VUL) is a permanent life insurance policy that offers flexible premiums and death benefit, as well as the opportunity to invest the policy’s cash value.
W: Life Insurance Glossary
Waiting period refers to the period between a life insurance policy’s start date and the date when coverage begins. Not all life insurance policies include a waiting period; those that do typically have waiting periods between one and two years.
Waiver of premium rider
A waiver of premium rider is a life insurance add-on that waives policy premiums, while still keeping the policy active, should the policy holder sustain a critical injury, illness, or disability.
Whole life insurance
Whole life insurance is a type of permanent life insurance that provides lifelong coverage and a guaranteed death benefit as long as premium payments are maintained. Whole life insurance also includes a cash value component, which increases as premiums are paid.
A will is a legal document that specifies how a person’s estate and assets should be distributed once they die. A will may also stipulate who is to become guardian of minors and who will manage the deceased’s estate.
Please reach out to us with any other life insurance questions you may have.