The living benefits glossary

A

Accelerated Benefit Rider (ABR)

A life insurance rider that lets you receive part of your death benefit while you are still alive after a qualifying terminal, chronic, or critical illness or injury. Living benefits on most modern policies are delivered through ABRs.

Accelerated Death Benefit (ADB)

The actual money paid out when you exercise an accelerated benefit rider. It is an early advance of a portion of your policy's death benefit.

Acceleration

The act of requesting an early payout of some or all of your death benefit after a qualifying event, instead of the full amount being paid to beneficiaries at death.

Activities of Daily Living (ADLs)

Six basic self-care tasks used to measure chronic illness: bathing, continence, dressing, eating, toileting, and transferring (moving in and out of a bed or chair). Most chronic illness riders trigger when you cannot perform two of the six without substantial assistance.

Administrative Fee

A one-time processing charge (often $150-$500, varies by carrier and state) some insurers deduct when you exercise an accelerated benefit rider.

AM Best Rating

A letter grade from rating agency AM Best that measures an insurer's financial strength and ability to pay claims. A+ is 'Superior,' the second-highest of fifteen possible ratings.

Application

The forms and health questions you complete to apply for life insurance. Accuracy matters: errors or omissions can delay approval or jeopardize future claims.

Attending Physician's Statement (APS)

A report from your doctor that an insurer may request during underwriting or when reviewing a living benefits claim to verify a diagnosis.

B

Beneficiary

The person or entity you name to receive the death benefit when you die. Accelerating benefits during your lifetime reduces what your beneficiaries later receive.

Benefit Base

The amount of death benefit eligible for acceleration under a rider, which may be the full face amount or a capped portion of it depending on the product.

C

Cash Surrender Value

The amount you would receive if you cancelled a permanent policy, equal to the cash value minus any surrender charges and loans.

Cash Value

The savings component inside permanent life insurance (whole life, IUL, universal life) that grows over time and can be borrowed against. Term insurance has no cash value.

Chronic Illness

For living benefits purposes, a condition in which a licensed health care practitioner certifies you cannot perform at least two of six ADLs for an extended period (commonly 90 days), or you require substantial supervision due to severe cognitive impairment.

Chronic Illness Rider

An accelerated benefit rider that pays a portion of your death benefit if you become chronically ill. Often used to pay for in-home care, facility care, or anything else — most riders place no restrictions on how you spend the money.

Claim

A formal request to the insurance company for payment under the policy or one of its riders.

Cognitive Impairment

A severe deterioration in memory, orientation, or reasoning — for example from Alzheimer's disease or other dementia — that requires substantial supervision. It is an alternative trigger for chronic illness benefits even if you can physically perform the ADLs.

Contestability Period

The first two years (in most states) after a policy is issued, during which the insurer can investigate and deny claims caused by material misstatements on the application.

Conversion (Term Conversion)

A feature that lets you exchange a term policy for a permanent one without new medical underwriting. Living benefit riders generally carry over or are re-issued on the new policy, subject to the carrier's rules.

Cost of Insurance (COI)

The internal monthly charge for the pure insurance protection inside a permanent policy, based on your age, health class, and the amount at risk.

Critical Illness

A serious, specifically listed medical event such as a heart attack, stroke, invasive cancer, end-stage renal failure, major organ transplant, ALS, blindness, paralysis, or aplastic anemia. The exact list varies by carrier and state.

Critical Illness Rider

An accelerated benefit rider that pays a portion of your death benefit after diagnosis of a listed critical illness. The payout usually scales with the severity of the condition and its impact on life expectancy.

Critical Injury Rider

An accelerated benefit rider covering severe physical injuries — commonly coma, paralysis, severe burns, and traumatic brain injury — rather than illnesses.

D

Death Benefit

The amount your beneficiaries receive when you die, also called the face amount. Living benefit payouts are deducted from it.

Discounted Death Benefit Method

The most common way carriers calculate a living benefits payout: the accelerated portion of the death benefit is reduced (discounted) based on your life expectancy, the severity of your condition, and an interest factor. The shorter the life expectancy, the closer the payout is to the full accelerated amount.

E

Elimination Period

A waiting period between when a qualifying condition begins and when benefits become payable. Common on chronic illness riders (often 90 days) and standard on disability insurance.

Evidence of Insurability

Proof of your health status — health questions, medical records, sometimes an exam — required to issue or increase coverage.

F

Face Amount

The stated death benefit of the policy at issue, such as $500,000. Riders, loans, and accelerations can change what is actually paid.

Free Look Period

A window (usually 10-30 days depending on state) after receiving a new policy during which you can cancel for a full refund.

G

Grace Period

Extra time (typically 30-61 days) to pay an overdue premium before a policy lapses.

Guaranteed Universal Life (GUL)

Permanent coverage designed for a guaranteed death benefit at the lowest cost, with minimal cash value. Many GUL products can include living benefit riders.

H

Health Class (Underwriting Class)

The rating an insurer assigns you after underwriting — such as Preferred Plus, Preferred, Standard, or a table rating — which determines your premium.

HIPAA Per Diem Limit

The IRS daily dollar cap (adjusted annually) on tax-free chronic illness and long-term care benefits paid on a per-day basis. Amounts above the cap that exceed actual care costs may be taxable.

I

Indexed Universal Life (IUL)

Permanent life insurance whose cash value growth is linked to a market index such as the S&P 500, with a floor against index losses. A popular chassis for living benefits because riders sit on top of flexible, lifelong coverage.

In Force

A policy that is active and providing coverage because premiums are paid and it has not lapsed or been surrendered.

IRC Section 101(g)

The federal tax code section that treats qualifying accelerated death benefits paid to terminally ill or chronically ill insureds as if they were death benefits — generally excluding them from income tax, subject to limits for chronic illness.

IRC Section 7702B

The tax code section governing qualified long-term care insurance and LTC riders. It imposes stricter benefit and consumer-protection requirements than 101(g) chronic illness riders.

L

Lapse

Termination of coverage because premiums stopped or policy values could no longer support charges. A lapsed policy pays no benefits, living or otherwise.

Level Term

Term life insurance with a premium and death benefit that stay level for a set period such as 10, 20, or 30 years. Many modern term products include living benefit riders at no extra premium.

Lien Method

An alternative payout calculation in which the accelerated amount becomes a lien (a loan-like charge, sometimes interest-bearing) against the policy, repaid from the death benefit at death.

Life Expectancy

A medical estimate of how long a person is likely to live. It drives both terminal illness eligibility (commonly 12-24 months) and the size of discounted living benefit payouts.

Living Benefits

Features that let you use your life insurance while you are alive — most importantly accelerated benefit riders for terminal, chronic, and critical illness or injury, and more broadly cash value access and waiver-of-premium features.

Long-Term Care (LTC) Insurance

Standalone insurance that reimburses long-term care costs like nursing homes and home health aides. Unlike living benefits, it is use-it-or-lose-it: no care, no payout.

Long-Term Care Rider

A 7702B-qualified rider on a life policy that pays for long-term care, usually by reimbursement or per-diem, with stricter rules than a chronic illness rider.

M

Material Misrepresentation

A false or omitted answer on an application significant enough that the insurer would have decided differently had it known the truth. It can void coverage during the contestability period.

Maturity Date

The age (often 100 or 121) at which a permanent policy ends and pays out its value if the insured is still alive.

Medicaid Spend-Down

Reducing countable assets to qualify for Medicaid. A living benefits payout counts as an asset once received, so timing and planning matter for anyone near Medicaid eligibility.

O

Owner (Policyowner)

The person or entity with the contractual rights in the policy — to name beneficiaries, take loans, and exercise living benefit riders. Often but not always the insured.

P

Paramedical Exam

A brief medical exam (height, weight, blood pressure, blood and urine samples) used in traditional underwriting. Many policies now skip it through accelerated underwriting.

Per Diem

A fixed daily benefit amount paid regardless of actual expenses, as opposed to reimbursement of costs. Chronic illness benefits paid per diem are tax-free only up to the IRS limit.

Permanent Life Insurance

Coverage designed to last your entire life — whole life, universal life, indexed universal life, and variable universal life — usually with a cash value component.

Policy Anniversary

The yearly anniversary of the policy's issue date, when many values reset, riders update, and index segments mature.

Premium

The payment that keeps a policy in force, paid monthly, quarterly, or annually. On flexible-premium products the amount can vary within limits.

Q

Qualifying Event

The diagnosis or condition that triggers eligibility under a rider — for example a terminal diagnosis, loss of two ADLs, a heart attack, or a severe burn.

R

Reinstatement

Restoring a lapsed policy, typically within 3-5 years, by paying back premiums and providing new evidence of insurability.

Residual Death Benefit

The death benefit that remains for beneficiaries after an acceleration. Some products guarantee a small minimum residual benefit even after a full acceleration.

Rider

An optional provision attached to a policy that adds, restricts, or modifies coverage — such as accelerated benefit, waiver of premium, or children's term riders.

S

Severity-Based Payout

A payout that scales with how seriously a condition affects life expectancy: a mild qualifying heart attack accelerates less; an aggressive cancer accelerates more.

T

Terminal Illness

An illness or physical condition that a physician certifies is reasonably expected to result in death within a defined period — 12 months in many states, up to 24 in others.

Terminal Illness Rider

The most common accelerated benefit rider. It pays a large portion (often up to 90-100% subject to caps) of the death benefit after a terminal diagnosis.

Term Life Insurance

Life insurance covering a set period (10-30 years) with no cash value. The most affordable way to get a large death benefit — and, with the right carrier, living benefits too.

U

Underwriting

The insurer's process of evaluating your age, health, lifestyle, and history to decide whether to offer coverage and at what price.

W

Waiver of Premium Rider

A rider that pays your premiums for you if you become totally disabled, keeping the policy (and its living benefits) in force when you need them most.

Whole Life Insurance

Permanent coverage with fixed premiums, a guaranteed death benefit, and guaranteed cash value growth, often paying dividends from mutual insurers.