Insurance & Financial Glossary
Clear, straightforward definitions for insurance, retirement, investing, and financial planning terms — written by industry professionals.
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401(k)
An employer-sponsored retirement savings plan that allows employees to contribute pre-tax dollars. Contributions grow tax-deferred until withdrawal. For 2025, the contribution limit is $23,500 (under 50).
403(b)
A retirement plan for certain employees of public schools, tax-exempt organizations, and ministers. Similar to a 401(k) but offered by non-profit and government employers.
A
Accidental Death & Dismemberment (AD&D)
Insurance that pays a benefit if the insured dies or loses a limb/sight due to an accident. More limited than life insurance and does not cover death from illness.
Actuary
A professional who uses statistics and mathematics to assess financial risks for insurance companies. Actuaries calculate premiums, reserves, and policy values.
Adjustable Life Insurance
A type of permanent life insurance that allows the policyholder to adjust the premium, death benefit, and coverage period over time.
Annuitization
The process of converting an annuity's accumulated value into a stream of periodic income payments, typically for the rest of the annuitant's life.
Annuity
A financial product that provides a stream of payments over time. Common types include fixed, variable, and indexed annuities. Often used for retirement income.
B
Beneficiary
The person or entity designated to receive the death benefit from a life insurance policy, retirement account, or annuity after the policyholder's death.
C
Cash Value
The savings component of permanent life insurance policies (whole life, universal life, variable life). Grows over time tax-deferred and can be borrowed against.
COBRA
The Consolidated Omnibus Budget Reconciliation Act, which allows employees to continue employer-sponsored health insurance coverage after leaving a job, typically for 18 months.
Coinsurance
The percentage of healthcare costs you pay after meeting your deductible. For example, with 20% coinsurance, you pay 20% of covered services and insurance pays 80%.
Copayment (Copay)
A fixed amount you pay for a healthcare service (like $30 for a doctor visit) after your deductible is met. Common in health insurance and Medicare plans.
D
Deductible
The amount you pay out-of-pocket for covered services before your insurance begins to pay. Higher deductibles usually mean lower monthly premiums.
Deferred Annuity
An annuity where payments begin at a future date. During the accumulation phase, funds grow tax-deferred. Common for retirement planning.
Disability Insurance
Insurance that replaces a portion of your income if you become unable to work due to illness or injury. Short-term (STD) covers weeks/months; long-term (LTD) covers years.
Dividend (Insurance)
A return of excess premium to policyholders from mutual insurance companies. Not guaranteed, but many whole life policies pay dividends that can reduce premiums or buy additional coverage.
E
Elimination Period
The waiting period between when a disability occurs and when benefits begin. Common periods are 30, 60, 90, or 180 days. Longer periods reduce premium costs.
Endowment Policy
A life insurance policy that pays a lump sum after a specific term or upon death. Less common today; largely replaced by other savings and insurance products.
Estate Planning
The process of arranging for the management and disposal of your assets after death. Includes wills, trusts, beneficiary designations, and powers of attorney.
Exchange-Traded Fund (ETF)
A type of investment fund that trades on stock exchanges. ETFs hold assets like stocks or bonds and typically track an index. Often used in retirement accounts.
Exclusion Ratio
The portion of an annuity payment that represents a return of your original investment and is therefore not taxable. The remainder is taxable as ordinary income.
F
Face Amount
The death benefit amount stated in a life insurance policy — what beneficiaries receive when the insured dies. Also called the coverage amount.
Fiduciary
A person or organization legally required to act in the best interest of their client. Registered Investment Advisors (RIAs) are fiduciaries; broker-dealers may not be.
Fixed Annuity
An annuity that guarantees a fixed rate of return during the accumulation phase and fixed payments during the payout phase. Considered the safest type of annuity.
G
Grace Period
The period after a premium due date during which coverage remains in force. Typically 30-31 days for life insurance. If payment is received during this period, no lapse occurs.
Guaranteed Issue
Life insurance policies that do not require a medical exam. Anyone who meets age requirements is accepted, but premiums are higher and coverage amounts are typically lower.
H
Health Savings Account (HSA)
A tax-advantaged savings account for people with high-deductible health plans. Contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free.
I
Immediate Annuity
An annuity where payments begin immediately (within 12 months of purchase). Often purchased with a lump sum, providing guaranteed income right away.
Indexed Universal Life (IUL)
A type of universal life insurance where cash value growth is linked to a stock market index (like the S&P 500) with a guaranteed minimum and a cap on maximum returns.
Inflation Rider
An optional add-on to a disability or long-term care policy that increases benefits annually to keep pace with inflation. Significantly increases premium cost.
IRA (Individual Retirement Account)
A tax-advantaged retirement account. Traditional IRAs offer tax-deductible contributions; Roth IRAs offer tax-free withdrawals in retirement. 2025 contribution limit: $7,000 ($8,000 if 50+).
L
Lapse
When a life insurance policy terminates due to non-payment of premiums. Some policies have non-forfeiture options that preserve some value even after a lapse.
Level Premium
A premium structure where the cost remains the same over the entire policy term. Common in term life insurance (e.g., 20-year level term).
Long-Term Care Insurance
Insurance that covers the cost of extended care services — nursing homes, assisted living, or in-home care — when you can no longer perform activities of daily living.
M
Medicaid
A joint federal-state program providing health coverage to low-income individuals. Also covers long-term care costs for those who meet strict income and asset requirements.
Medicare
The federal health insurance program primarily for people 65+. Part A (hospital), Part B (medical), Part C (Medicare Advantage), Part D (prescription drugs).
Medicare Advantage (Part C)
Private insurance plans that replace Original Medicare (Parts A & B) and often include Part D drug coverage. May offer additional benefits like dental and vision.
Medigap (Medicare Supplement)
Private insurance that fills gaps in Original Medicare coverage, such as deductibles and coinsurance. Sold by private insurers; standardized plans labeled A through N.
Mutual Fund
An investment vehicle pooling money from many investors to buy securities. Often used in 401(k) plans and IRAs. Comes in stock, bond, balanced, and money market varieties.
N
Net Asset Value (NAV)
The per-share value of a mutual fund or ETF, calculated by dividing total assets minus liabilities by the number of shares outstanding.
Non-Forfeiture Options
Options available when a permanent life insurance policy lapses: cash surrender value, reduced paid-up insurance, or extended term insurance.
P
Policy Loan
A loan from the insurance company using a permanent policy's cash value as collateral. Interest rates are typically lower than bank loans, but unpaid loans reduce the death benefit.
Power of Attorney
A legal document giving someone authority to make financial or healthcare decisions on your behalf if you become incapacitated. Essential for estate planning.
Premium
The amount paid to an insurance company for coverage. Can be paid monthly, quarterly, or annually. Factors affecting premiums include age, health, coverage amount, and policy type.
Probate
The legal process of validating a will and distributing assets after death. Can be time-consuming and expensive. Certain assets (with named beneficiaries) bypass probate.
R
Required Minimum Distribution (RMD)
The minimum amount you must withdraw annually from retirement accounts starting at age 73 (as of 2025). Failure to take RMDs results in a 25% penalty on the amount not withdrawn.
Rider
An optional add-on to an insurance policy that modifies coverage. Common riders include waiver of premium, accelerated death benefit, and long-term care riders.
Risk Pool
The group of insured individuals whose collective premiums and claims determine insurance pricing. Larger, more diverse pools generally result in more stable premiums.
Roth IRA
A retirement account funded with after-tax dollars. Contributions are not tax-deductible, but qualified withdrawals in retirement are completely tax-free. Income limits apply for contributions.
S
Social Security
A federal program providing retirement, disability, and survivor benefits. Full retirement age is 67 for those born in 1960 or later. Benefits are based on your 35 highest-earning years.
SPIA (Single Premium Immediate Annuity)
An annuity purchased with a single lump-sum payment that begins providing income immediately. Simplest form of annuity; payments are guaranteed for life or a specified period.
Surrender Charge
A fee charged by insurance companies if you withdraw money from an annuity or permanent life insurance policy within a certain period (usually 5-10 years from purchase).
T
Term Life Insurance
Life insurance that provides coverage for a specific period (10, 20, or 30 years). If the insured dies during the term, beneficiaries receive the death benefit. No cash value. Most affordable type.
Trust
A legal arrangement where a trustee holds and manages assets for beneficiaries. Revocable trusts avoid probate; irrevocable trusts can provide tax benefits and asset protection.
U
Underwriting
The process insurers use to evaluate risk and determine premiums. May include medical exams, questionnaires, and reviewing medical records. Results determine your rate class.
Universal Life Insurance
Permanent life insurance with flexible premiums and death benefits. Cash value grows based on current interest rates. More flexible than whole life but involves more risk.
V
Variable Annuity
An annuity where returns depend on the performance of underlying investment options (sub-accounts). Offers higher potential returns than fixed annuities but with investment risk.
Variable Life Insurance
Permanent life insurance where cash value can be invested in sub-accounts (similar to mutual funds). Death benefit and cash value fluctuate based on investment performance.
W
Waiver of Premium Rider
An insurance rider that waives premium payments if the insured becomes totally disabled. Ensures coverage continues even if you cannot work and pay premiums.
Whole Life Insurance
Permanent life insurance providing coverage for the insured's entire life with fixed premiums. Includes a guaranteed cash value component that grows at a guaranteed rate.
Will
A legal document that specifies how your assets should be distributed after death. Without a will (dying intestate), state laws determine distribution.