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Life insurance glossary — terms defined plainly

Last updated: May 28, 2026 · Reviewed by Mark Snyder, NPN 22163900

How to use this: a plain-English glossary of every term you'll hear on a call with me or read in a carrier illustration. Use it to decode the jargon — and tell me if anything I say on our call doesn't make sense after.

Quick index

AG 49-B

NAIC Actuarial Guideline 49-B is the regulatory standard that governs how indexed universal life (IUL) illustrations may be presented. Effective May 1, 2023, AG 49-B caps illustrated index credit rates and restricts the use of bonuses on top of the maximum illustrated rate. The goal: prevent agents from showing inflated projections consumers anchor on.

Beneficiary

The person (or trust, estate, or organization) named in a life insurance policy to receive the death benefit when the insured dies. You can name primary and contingent beneficiaries. Beneficiaries can be changed at any time by the policy owner.

Cap rate

The maximum index credit your IUL cash value can earn in a given segment. If the cap is 9% and the underlying index returns 14%, you earn 9%. Caps are set by the carrier and can change over the life of the policy — track-record on cap stability is one of the most under-discussed risks in IUL.

Cash value

The accumulation account inside a permanent life insurance policy (whole life, IUL, universal life). Premiums paid in, minus the cost of insurance and policy charges, accumulate as cash value. The cash value earns interest based on the policy's design and is accessible during the insured's lifetime through withdrawals or loans.

Cost of insurance (COI)

The internal charge a carrier deducts from your cash value to pay for the death benefit. COI rises with the insured's age. In IUL, COI plus other policy charges are why an underfunded policy can stall or lapse — the rising COI outpaces the cash value's growth.

Death benefit

The amount the life insurance carrier pays to the beneficiary when the insured dies, as long as the policy is in force. For most life insurance, the death benefit is paid as an income-tax-free lump sum under current federal tax law.

Final expense insurance

A small whole-life insurance policy (typically $5,000 to $25,000) designed to cover funeral, burial or cremation, and end-of-life costs. Built for older buyers (most plans cover ages 50–85), needs no medical exam on most plans, and locks in a level premium for life. Also called burial insurance or funeral insurance.

Floor

The minimum interest credit an IUL policy will pay to the indexed value in a given period — most commonly 0%. The floor protects the indexed value from market losses: if the index falls 20%, your indexed credit is 0%, not negative. Policy charges still apply regardless.

Free-look period

A state-mandated window after policy issue during which you can cancel the policy for any reason and receive a full refund of premiums paid. Length varies by state and product — typically 10 to 30 days. A genuine consumer protection.

Graded death benefit

A feature on some final expense policies — usually guaranteed-issue plans for applicants with serious health conditions — where the policy pays only premiums-paid-plus-interest (rather than the full death benefit) if the insured dies of natural causes within an initial waiting period (often 2 years). Accidental death is typically covered in full from day one.

Guaranteed issue

A life insurance plan that accepts every applicant within the eligible age range with no health questions. Higher cost and includes a waiting period on natural-cause death (usually 2 years). The fallback when an applicant can't qualify for simplified-issue underwriting.

Indexed universal life (IUL)

A permanent life insurance policy whose cash value earns interest credits linked to the performance of a market index (most commonly the S&P 500). Gains are credited up to a cap; losses are floored, typically at 0%. IUL is an insurance product regulated by state insurance departments, not a security.

Modified Endowment Contract (MEC)

A life insurance policy that has been funded faster than the IRS allows under Section 7702A. MEC status causes the policy to lose key tax advantages on distributions — withdrawals and loans become taxable to the extent of gain, and a 10% penalty may apply before age 59½. A well-designed IUL is max-funded but non-MEC.

NPN (National Producer Number)

A unique number assigned by the NAIC to every licensed insurance producer in the United States. Used to verify a producer's licenses across states. Mark Snyder's NPN is 22163900. You can verify any producer at nipr.com.

Participation rate

The percentage of the index gain that an IUL policy credits to your cash value, before any cap is applied. A 100% participation rate with a 9% cap means you get 100% of the index gain, up to 9%. A 50% participation rate with no cap means you get half of the index move.

Policy loan

A loan you take against the cash value of a permanent life insurance policy. The carrier charges interest, but loans are generally not treated as taxable income while the policy stays in force. Unpaid loans reduce the death benefit. Loans plus underfunding are the main way IUL policies lapse and trigger taxable events.

Premium

The payment you make to the carrier to keep the policy in force. Can be paid monthly, quarterly, semi-annually, or annually. In whole life and final expense, the premium is level for life. In IUL, the premium is flexible within carrier and IRS limits.

Simplified issue

A life insurance underwriting category that uses a short list of yes/no health questions instead of a medical exam or bloodwork. Most final expense policies are simplified-issue. Acceptable answers yield approval with full-day-one coverage in most cases.

Surrender charge

A fee a carrier deducts from an IUL or universal life policy's cash value if the policy is canceled (surrendered) in the early years — typically declining to zero over 10–15 years. Surrender charges are why IUL rewards patience and punishes short holding periods.

Term life insurance

Life insurance that pays the death benefit only if the insured dies within a set period (often 10, 20, or 30 years). Term has no cash value. Term gives the most death benefit per dollar of premium for a fixed period and is the right answer for most people who just need coverage. After the term ends, coverage expires.

Whole life insurance

Permanent life insurance with a fixed premium, a guaranteed death benefit, and guaranteed cash-value growth. Cash value grows on a tax-deferred basis. Whole life trades upside for certainty — predictable by design, but less flexibility than IUL.

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Related: What is IUL? · Final expense · All guides · Sources & references