Life insurance glossary, plain English
- Most life insurance jargon describes one of three things, who's covered, who gets paid, and how the price was decided.
- A handful of terms (contestability, free look, convertibility) directly affect your rights and are worth knowing before you sign.
- This glossary is general. Always check your own policy's specific wording, since details vary by insurer.
The short answer
Life insurance has its own vocabulary, and most of it is simpler than it sounds. Below are the terms you're most likely to run into on an application, a quote, or a policy document, grouped so related ones sit together, followed by an alphabetical list for quick lookup.
The people involved
Applicant: the person applying for the policy. Usually the same person as the life insured, but not always.
Life insured (Insured): the person whose life the policy covers. If this person dies while the policy is in force, it triggers a claim.
Policy owner: the person or party who owns the contract, controls it, and can change the beneficiary, cancel it, or convert it. Often the same person as the life insured, but a spouse, a business, or a trust can also own a policy.
Beneficiary: the person or party named to receive the payout if the life insured dies. You can name more than one, and you can usually change this at any time unless it's an irrevocable beneficiary.
Irrevocable beneficiary: a beneficiary designation that can't be changed without that beneficiary's written consent. Less common, sometimes used in specific legal or family situations.
Advisor (Broker, Agent): the licensed individual who helps you buy the policy. A broker typically compares options across multiple insurers rather than selling for just one.
Coverage and money
Coverage amount (Sum insured, Face amount): the dollar amount the policy pays out on a valid claim.
Premium: the amount you pay, usually monthly, to keep the policy in force.
Death benefit: the amount paid to your beneficiary when a valid claim is made. For personal life insurance in Canada, this is generally paid tax-free.
Cash surrender value (CSV): a value that builds inside some permanent policies over time, which the policy owner can borrow against or receive if the policy is cancelled. Term policies don't build this.
Grace period: the window after a missed premium payment (commonly around 30 days) during which the policy stays in force while you catch up, before it lapses.
How pricing and underwriting work
Underwriting: the process an insurer uses to assess your risk (health, age, activities, lifestyle) and decide what to offer and at what price.
Fully underwritten: a policy type involving a full application, health questions, and often a paramedical exam and blood work. Usually offers the best pricing and highest coverage limits if you qualify.
Simplified issue: a policy type with a shorter health questionnaire and no medical exam. Coverage caps are lower, often up to $500,000 per insurer, but approval is faster and it can cover activities a fully underwritten policy might exclude.
Rate class (Standard, Preferred): the pricing tier an insurer assigns you based on your underwriting results. Better health and lifestyle factors generally mean a better rate class.
Flat extra (Rating): an added charge on top of the base premium, applied when an insurer sees added risk (a health condition, or a higher-risk activity) but is still willing to offer coverage.
Exclusion: a condition where the policy won't pay if death results from a specific cause or activity named in the contract (for example, a climbing exclusion). Insurers must disclose exclusions, and removing one is sometimes possible for a higher premium.
Medical Information Bureau (MIB): a shared database Canadian insurers use to check an applicant's prior insurance application history, mainly to catch inconsistencies between applications.
Policy types and rights
Term insurance: coverage for a set period (commonly 10, 20 or 30 years), generally the most affordable option while you have it, with premiums that rise substantially if you renew after the term ends.
Permanent insurance: coverage designed to last your whole life rather than a set term, generally more expensive upfront, and sometimes includes cash surrender value.
Convertibility: a feature on most term policies letting you convert some or all of the coverage to a permanent policy before a set age, without new medical underwriting, even if your health has changed.
Guaranteed insurability: a rider that lets you buy more coverage at certain future points (say, marriage or a new baby) without new health underwriting, usually for modest amounts.
Free look period: a window (at least 10 days in Canada) after your policy is delivered where you can cancel it for a full refund if you change your mind.
Contestability period: the window (generally the first 2 years) during which an insurer can investigate and potentially deny a claim based on a misstatement on the application. After that period, a policy is generally contestable only for fraud.
Suicide exclusion: a standard clause (typically 2 years) excluding suicide from coverage early in a policy's life, after which it's generally covered like any other cause of death.
Group insurance: coverage provided through an employer or association master contract. Convenient and often free or low-cost, but usually smaller and tied to your employment or membership.
What to do next
If a term in your own policy documents isn't covered here, ask us, we'd rather explain it plainly than have you guess. For a deeper look at how buying actually works, see our life insurance basics guide, or get a quote to see current pricing for your age.
FAQ
Where can I find these terms defined in my own policy?
Your policy contract and your application both use these terms. If a definition here doesn't match your paperwork, your policy wording is the one that governs.
Do all Canadian insurers use the same definitions?
The concepts are standard across the industry, but exact wording and specific numbers (grace periods, contestability windows) can vary slightly by insurer, so check your contract.
What's the difference between an advisor, a broker and an agent?
In everyday use they're often interchangeable, all describe someone licensed to sell life insurance. A broker like Affinity typically compares products across several insurers rather than representing just one.
Philip Setter has been a licensed life insurance advisor since 2014 and founded Affinity Life in 2020. He's a climber, ice climber and ski tourer based in Calgary.