Life Insurance Glossary: 50+ Terms Every Canadian Should Know (2026)

This glossary covers 50+ life insurance terms every Canadian should understand — from accelerated underwriting to whole life, organized alphabetically. Whether you're buying your first policy, reviewing an existing one, or comparing quotes, knowing the terminology helps you make better decisions and avoid costly misunderstandings. For a broader overview of how life insurance works, start with our beginner's guide.

A

Accelerated Underwriting

A streamlined underwriting process that uses data analytics, electronic health records, and prescription databases to evaluate applicants without requiring a traditional medical exam. Carriers like Sun Life (Sun Life Go) and Manulife offer accelerated underwriting for healthy applicants under a certain age and coverage amount. Decisions can come in minutes rather than weeks. Learn more about the full underwriting process in Canada.

Accumulation Fund

The investment account inside a universal life (UL) insurance policy where excess premiums are deposited and grow on a tax-deferred basis. The policyholder typically chooses how the accumulation fund is invested — options may include guaranteed interest accounts, index-linked accounts, or managed portfolios. The fund's growth contributes to the policy's cash value.

Actuary

A professional who uses mathematics, statistics, and financial theory to assess risk and set insurance premiums. Actuaries calculate mortality rates, determine how much an insurer needs to charge to remain solvent, and design the pricing models behind every life insurance product. In Canada, actuaries are typically Fellows of the Canadian Institute of Actuaries (FCIA).

Adjusted Cost Basis (ACB)

A tax calculation under the Income Tax Act that determines the taxable gain when you surrender or dispose of a life insurance policy. The ACB starts roughly equal to your cumulative premiums and is reduced each year by the net cost of pure insurance (NCPI). When you surrender a policy, the CRA taxes the difference between the cash surrender value and the ACB as ordinary income. Understanding your ACB is critical before cancelling any permanent policy.

Annuitant

The person whose life is used to measure the duration of an annuity contract. The annuitant receives periodic payments from the annuity while alive. In some contexts, a life insurance policyholder may convert their policy's cash value into an annuity, at which point they become the annuitant — receiving regular income instead of holding a death benefit.

B

Beneficiary

The person, persons, or entity designated to receive the death benefit when the insured person dies. You can name a primary beneficiary and one or more contingent (backup) beneficiaries. Naming a specific beneficiary (rather than your estate) ensures the payout bypasses probate, reaches your loved ones faster, and is generally protected from creditors. For the complete rules, see our beneficiary rules guide.

C

Cash Surrender Value (CSV)

The amount of money you receive if you cancel (surrender) a permanent life insurance policy. The CSV is the policy's cash value minus any surrender charges, outstanding policy loans, and unpaid premiums. Surrendering a policy triggers a taxable event: the CRA taxes the difference between the CSV and your adjusted cost basis (ACB) as ordinary income.

Collateral Assignment

A legal arrangement where you assign your life insurance policy to a lender (bank, credit union, or trust company) as security for a loan. If you die while the loan is outstanding, the lender receives enough of the death benefit to cover the debt, and the remainder goes to your named beneficiary. Collateral assignment is significant for tax purposes: under Section 20(1)(e.2) of the Income Tax Act, premiums may become partially deductible when a policy is collaterally assigned for a business or investment loan.

Contestability Period

The first two years after a life insurance policy is issued (or reinstated), during which the insurer can investigate and potentially deny a claim based on material misrepresentation on the application. After this period, the insurer generally cannot contest a claim unless outright fraud is proven. Complete honesty on your application protects your beneficiaries from a denied claim during this window.

Conversion Privilege

A feature in most term life insurance policies that allows you to convert your term policy to a permanent (whole life or universal life) policy without a new medical exam or proof of insurability. Conversion is typically available up to a certain age (often 65 or 70) or before the term expires. This is valuable because it locks in your ability to get permanent coverage regardless of future health changes. For more on this, see our guide on life insurance explained.

Cost of Insurance (COI)

The portion of your premium that pays for the actual death benefit protection — the mortality charge. In universal life policies, the COI is deducted monthly from your policy's account value. The COI increases as you age because mortality risk increases. In whole life policies, the COI is embedded in the fixed premium structure and is not separately visible to the policyholder.

D

Death Benefit

The amount of money paid to the beneficiary when the insured person dies. In Canada, the death benefit is received completely tax-free by the named beneficiary. The death benefit may be a fixed amount (level death benefit) or may include the policy's cash value in addition to the face amount, depending on the policy type and options selected. This is the core purpose of any life insurance policy.

Dividend (Life Insurance)

A distribution of surplus earnings from a participating whole life insurance policy. Dividends are not guaranteed — they depend on the insurer's investment returns, mortality experience, and expense management. Policyholders can typically use dividends in several ways: receive cash, reduce premiums, purchase paid-up additions (additional coverage), or accumulate at interest. Dividends from participating policies are generally not taxable until they exceed the policy's ACB. See our guide on term vs. whole life insurance for how dividends factor into the comparison.

E

Estate Planning

The process of arranging your financial affairs to ensure your assets are distributed according to your wishes after death, with minimal tax and administrative burden. Life insurance is a cornerstone of estate planning in Canada because the death benefit is tax-free, bypasses probate when a beneficiary is named, and provides immediate liquidity to cover estate taxes, debts, and final expenses.

Evidence of Insurability

Proof of your health status and risk profile, required by an insurer before issuing or modifying a life insurance policy. This may include medical exams, blood tests, urine tests, attending physician statements, prescription history checks, and lifestyle questionnaires. The level of evidence required depends on the coverage amount, your age, and the policy type.

Exempt Policy

A permanent life insurance policy that meets the "exempt test" under Regulation 306 of the Income Tax Act. Exempt policies enjoy tax-deferred growth on their cash value — investment income inside the policy is not taxed annually. Most whole life and universal life policies sold in Canada are designed to qualify as exempt. If a policy fails the exempt test (typically from overfunding), the investment income becomes taxable each year, eliminating the key tax advantage.

F

Face Amount

The original death benefit amount stated on the life insurance policy — also called the face value or coverage amount. For a $500,000 policy, the face amount is $500,000. The actual death benefit paid may differ from the face amount if the policy has accumulated dividends, paid-up additions, outstanding loans, or if certain riders (like accidental death benefit) apply.

G

Grace Period

The window of time (usually 30 or 31 days) after a premium due date during which you can make a late payment without your policy lapsing. If you die during the grace period, the death benefit is still paid — though the overdue premium is typically deducted from the payout. Once the grace period expires without payment, the policy lapses and coverage ends (though some permanent policies have non-forfeiture options).

Guaranteed Issue

A type of life insurance policy that guarantees acceptance regardless of health — no medical exam and no health questions. Coverage amounts are typically limited ($5,000–$25,000), premiums are higher than underwritten policies, and most guaranteed issue policies include a graded death benefit (reduced payout if death occurs within the first two years from natural causes). Available primarily to applicants aged 50–80. Protected by Assuris, the industry compensation corporation.

I

Illustration

A projection document provided by an insurance company or advisor that shows how a life insurance policy is expected to perform over time — including projected premiums, cash values, death benefits, and dividends (for participating policies). Illustrations are based on assumptions that may not materialize. Always distinguish between guaranteed values (contractually promised) and non-guaranteed values (projected based on current assumptions). The CLHIA sets guidelines for how illustrations must be presented to consumers.

In-Force

A policy that is currently active and providing coverage. As long as premiums are paid (or the policy is self-sustaining through cash value), the policy remains in force. An "in-force illustration" is an updated projection of how your existing policy is expected to perform going forward.

Incontestability Clause

A standard provision in Canadian life insurance policies that prevents the insurer from denying a claim after the contestability period (usually two years) has passed, except in cases of fraud. This clause protects policyholders and beneficiaries by ensuring that once the policy has been in force for two years, the insurer must pay the death benefit regardless of any errors or omissions on the original application (short of deliberate fraud).

Insurable Interest

A legal requirement that the person purchasing a life insurance policy must have a genuine financial interest in the continued life of the insured. You automatically have insurable interest in your own life. You also typically have insurable interest in your spouse, children, business partner, or key employee. Without insurable interest, the policy is void. This requirement prevents speculative insurance purchases on strangers.

K

Key-Person Insurance

A life insurance policy purchased by a business on the life of a key employee — someone whose death would cause significant financial harm to the company. The business is both the policy owner and beneficiary. If the key person dies, the death benefit helps the business cover lost revenue, recruitment costs, and operational disruption. Premiums may be deductible as a business expense for non-controlling employees under certain conditions.

L

Lapse

The termination of a life insurance policy due to non-payment of premiums after the grace period has expired. Once a policy lapses, coverage ends. For term policies, there is no cash value — the policy simply ceases. For permanent policies, the insurer may apply a non-forfeiture option (such as reduced paid-up insurance or extended term). A lapsed policy can sometimes be reinstated within a certain period (usually two years) by paying overdue premiums and providing evidence of insurability.

Level Premium

A premium that remains the same throughout the policy's term or duration. Most term life and whole life policies in Canada have level premiums — you pay the same amount every month or year for the entire coverage period. This contrasts with yearly renewable term (YRT) premiums, which increase annually as you age. Level premiums provide predictability and budget certainty.

Living Benefit

A feature or rider that allows the policyholder to access a portion of the death benefit while still alive, typically upon diagnosis of a terminal illness, critical illness, or chronic condition. Living benefits provide financial relief when you need it most — while you're alive — rather than only paying out at death. Common examples include terminal illness riders and critical illness riders.

M

Material Misrepresentation

A false or misleading statement on a life insurance application that is significant enough to affect the insurer's decision to issue the policy or the premium charged. Examples include failing to disclose a cancer diagnosis, lying about smoking status, or omitting a dangerous hobby. If discovered during the contestability period, material misrepresentation can void the policy and result in a denied claim.

Medical Information Bureau (MIB)

A shared database used by life insurance companies to exchange medical and lifestyle information disclosed by applicants. When you apply for life insurance, the insurer may check MIB records for information from previous applications. MIB codes flag conditions like diabetes, heart disease, smoking, or hazardous activities. The MIB helps prevent fraud and ensures consistency across applications, but it does not contain complete medical records — only coded summaries of past disclosures.

Mortality Charge

The cost of the death benefit protection within a life insurance policy, based on actuarial tables that reflect the probability of death at each age. In universal life policies, the mortality charge is deducted monthly from the policy's account value. The charge increases with age. In whole life policies, the mortality charge is built into the level premium and is not separately itemized.

N

Non-Forfeiture Option

A contractual option in permanent life insurance policies that preserves some value if you stop paying premiums. Common non-forfeiture options include: reduced paid-up insurance (a smaller death benefit that remains in force with no further premiums), extended term insurance (the current death benefit continues for a limited period using the cash value), and cash surrender (you receive the cash surrender value and the policy ends). These options ensure you don't lose everything if you can no longer afford premiums.

Non-Medical Life Insurance

Life insurance that does not require a traditional medical exam (blood tests, urine sample, physical examination). Instead, the applicant completes a health questionnaire, and the insurer may check prescription databases and MIB records. Non-medical policies include simplified issue and guaranteed issue products. They offer faster approval but typically cost 15–30% more than fully underwritten policies for the same coverage amount.

P

Paid-Up Additions (PUAs)

Small amounts of additional whole life insurance purchased using dividends or extra premium payments. Each paid-up addition increases the policy's total death benefit and cash value, and each PUA itself earns dividends and generates its own cash value — creating a compounding effect. PUAs are one of the primary wealth-building mechanisms in participating whole life insurance.

Participating Policy

A whole life insurance policy that is eligible to receive dividends from the insurer's participating account. Participating policyholders share in the insurer's surplus earnings from investments, mortality experience, and expense management. Dividends are not guaranteed but have been paid consistently by major Canadian carriers for over 100 years. Participating policies typically cost more than non-participating ones but offer the potential for significant long-term value through dividend accumulation.

Permanent Insurance

Life insurance that provides coverage for your entire lifetime (as long as premiums are paid or the policy is self-sustaining). The two main types are whole life and universal life. Permanent insurance builds cash value that grows tax-deferred, offers level or structured premiums, and guarantees a death benefit regardless of when you die. It costs significantly more than term insurance but serves different purposes — primarily estate planning, wealth transfer, and lifelong protection. Learn more in our policy basics guide.

Policy Loan

A loan from your insurance company using the cash value of your permanent life insurance policy as collateral. Unlike bank loans, policy loans don't require a credit check or application approval. Interest is charged on the borrowed amount. If the loan is not repaid, it is deducted from the death benefit when you die. Policy loans generally do not trigger a taxable disposition (unlike surrendering the policy), making them a tax-efficient way to access cash value.

Premium

The amount you pay (monthly, quarterly, or annually) to keep your life insurance policy in force. Premiums are determined by your age, health, gender, smoking status, coverage amount, policy type, and term length. For term and whole life policies, premiums are typically level (fixed). For universal life, premiums may be flexible within certain ranges. Premiums are generally not tax deductible for individuals in Canada. The Financial Consumer Agency of Canada (FCAC) provides consumer guidance on understanding insurance costs.

R

Rated Policy (Substandard Risk)

A life insurance policy issued to an applicant who presents higher-than-average risk due to health conditions, lifestyle factors, or occupation. The insurer "rates" the policy by charging a higher premium — often expressed as a percentage above standard rates (e.g., "Table 2" or "+50%"). Rated policies are better than being declined outright — they still provide full coverage, just at a higher cost.

Reinstatement

The process of restoring a lapsed life insurance policy to active status. Most policies allow reinstatement within a certain period (typically two years from lapse). To reinstate, you must pay all overdue premiums plus interest and provide evidence of insurability (proof that you're still insurable). Reinstatement is often preferable to buying a new policy because it preserves your original age and health rating.

Renewable Term

A term life insurance policy that can be renewed at the end of the term without providing new evidence of insurability. When you renew, the premium increases based on your attained age. Renewable term is valuable because it guarantees your ability to continue coverage regardless of health changes, but the renewal premiums can be very expensive — often 5–10 times the original premium for the same coverage.

Replacement

Cancelling an existing life insurance policy and purchasing a new one. Replacement can be beneficial (if you find better rates or features) or harmful (if you lose cash value, trigger a taxable gain, face a new contestability period, or lose coverage during the transition). Provincial insurance regulators require disclosure when a new policy replaces an existing one. Never cancel an old policy until the new one is fully in force.

Rider

An optional add-on to a life insurance policy that provides additional coverage or benefits for an extra premium. Common riders in Canada include waiver of premium (premiums waived if you become disabled), accidental death benefit (extra payout for accidental death), child term rider (coverage for your children), critical illness rider (lump sum on diagnosis), and guaranteed insurability rider (right to buy more coverage without a medical exam).

S

Settlement Option

The method by which a life insurance death benefit is paid to the beneficiary. Options typically include a lump sum (the full amount in one payment), installments (fixed periodic payments over a specified period), life annuity (payments for the beneficiary's lifetime), or interest accumulation (the insurer holds the funds and pays interest). Most beneficiaries choose a lump sum, but other options can provide structured financial security.

Simplified Issue

A type of life insurance underwriting that requires only a health questionnaire — no medical exam, blood tests, or physical examination. The insurer may check prescription databases, MIB records, and electronic health data to verify answers. Simplified issue coverage is available up to $500,000–$1,000,000 depending on the carrier and applicant age. Approval can happen in 24–48 hours. Premiums are higher than fully underwritten policies but lower than guaranteed issue.

Substandard Risk

An applicant whose health, lifestyle, or occupation presents a higher mortality risk than average, resulting in a rated policy with higher premiums. Common substandard risk factors include diabetes, heart disease, obesity, smoking, hazardous occupations (mining, commercial fishing), and dangerous hobbies (skydiving, private aviation). Being classified as substandard doesn't mean you can't get coverage — just that you'll pay more for it.

Suicide Clause

A standard provision in Canadian life insurance policies that limits the insurer's liability if the insured dies by suicide within the first two years of the policy (coinciding with the contestability period). If suicide occurs within this window, the insurer typically returns the premiums paid rather than paying the full death benefit. After two years, the suicide clause no longer applies, and the full death benefit is paid regardless of cause of death.

Surrender Charge

A fee deducted from the cash value when you surrender (cancel) a permanent life insurance policy, particularly in the early years. Surrender charges compensate the insurer for the upfront costs of issuing the policy (commissions, underwriting, administration). They are highest in the first few years and typically decrease to zero over 10–20 years. Always check the surrender charge schedule before cancelling a permanent policy.

T

Term Insurance

Life insurance that provides coverage for a specific period — typically 10, 20, or 30 years — with a level premium and a level death benefit. If you die during the term, your beneficiary receives the tax-free death benefit. If you survive the term, coverage ends (unless renewed or converted). Term insurance has no cash value and is the most affordable type of life insurance. Over 70% of new life insurance policies sold in Canada are term. See our complete comparison of term vs. whole life insurance.

U

Underwriting

The process by which an insurance company evaluates an applicant's risk and determines whether to offer coverage, at what premium, and with what conditions. Underwriting considers age, health history, medical exam results, family medical history, lifestyle (smoking, alcohol, drugs), occupation, hobbies, driving record, and financial information. The outcome is a risk classification: preferred (lowest premiums), standard, rated/substandard (higher premiums), or decline. For the full process, see our guide on underwriting in Canada.

Universal Life (UL)

A type of permanent life insurance that combines a death benefit with a flexible investment component. Policyholders can adjust their premium payments and death benefit within certain limits, and choose how the cash value is invested. Universal life offers more flexibility than whole life but requires active management — if investment returns underperform or the cost of insurance rises faster than expected, additional premiums may be needed to keep the policy in force. Regulated by the Office of the Superintendent of Financial Institutions (OSFI).

V

Viatical Settlement

The sale of an existing life insurance policy by a terminally or chronically ill policyholder to a third party for a lump sum that is less than the death benefit but more than the cash surrender value. The buyer becomes the new owner and beneficiary of the policy and continues paying premiums. Viatical settlements provide the policyholder with immediate cash for medical expenses, care, or quality-of-life needs. They are less common in Canada than in the United States but do exist.

W

Waiver of Premium

A rider that waives your premium payments if you become totally disabled and are unable to work. The policy remains in full force — the death benefit, cash value, and all other features continue as if you were paying premiums. The definition of "total disability" and the waiting period before the waiver takes effect vary by insurer. This rider is especially valuable for anyone who relies on employment income to pay their premiums.

Whole Life Insurance

A type of permanent life insurance that provides coverage for your entire lifetime with level premiums, a guaranteed death benefit, and guaranteed cash value accumulation. Whole life policies can be participating (eligible for dividends) or non-participating. They offer the most guarantees of any life insurance product — fixed premiums, fixed death benefit, and a minimum guaranteed cash value schedule. Whole life is the most common permanent insurance product sold in Canada and is widely used for estate planning and wealth transfer.

How to Use This Glossary

Bookmark this page and refer back to it whenever you encounter an unfamiliar term in a policy document, insurance illustration, or advisor conversation. Understanding these terms puts you in control of your insurance decisions and helps you avoid common mistakes.

For a step-by-step explanation of how life insurance works from application to claim, read our simple guide to life insurance. For help choosing between policy types, start with term vs. whole life insurance.

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Frequently Asked Questions

What does 'underwriting' mean in life insurance?

Underwriting is the process an insurance company uses to evaluate your application and determine whether to offer you coverage, and at what price. The underwriter reviews your age, health history, medical exam results (if required), lifestyle, occupation, and hobbies to assess your risk level. Based on this assessment, you may receive standard rates, preferred rates (lower premiums for excellent health), rated/substandard rates (higher premiums for elevated risk), or a decline. The underwriting process can take anywhere from minutes (accelerated underwriting) to several weeks (fully underwritten policies).

What is the difference between a beneficiary and an annuitant?

A beneficiary is the person or entity who receives the death benefit when the insured person dies. An annuitant is the person whose life is used to measure the duration of an annuity contract — they receive periodic payments while alive. In life insurance, the policyholder names the beneficiary. In an annuity, the annuitant is the person receiving income. These can be the same person in some contracts, but they serve fundamentally different roles: the beneficiary receives money upon death, while the annuitant receives money while living.

What happens during the contestability period of a life insurance policy?

The contestability period is typically the first two years after a life insurance policy is issued (or reinstated). During this window, the insurance company can investigate a claim and potentially deny it if they discover material misrepresentation on the application — such as undisclosed health conditions, smoking status, or dangerous hobbies. After the contestability period expires, the insurer generally cannot deny a claim except in cases of outright fraud. This is why complete honesty on your application is critical: an undisclosed condition discovered during the contestability period can void the entire policy.

What is the difference between term insurance and permanent insurance?

Term insurance provides coverage for a fixed period (10, 20, or 30 years) with no cash value — it is pure death benefit protection at the lowest cost. When the term expires, coverage ends unless you renew (at much higher rates) or convert to permanent coverage. Permanent insurance (whole life and universal life) covers you for your entire lifetime, builds tax-deferred cash value, and has level or structured premiums. Term costs 5–10 times less than permanent for the same death benefit amount, but permanent provides lifelong protection and a savings/investment component.

What does 'guaranteed issue' mean and who qualifies?

Guaranteed issue life insurance means you are guaranteed to be accepted regardless of your health — no medical exam and no health questions. Everyone who meets the age requirements (typically 50–80) is approved. The trade-off is that coverage amounts are limited (usually $5,000 to $25,000), premiums are significantly higher than underwritten policies, and most guaranteed issue policies include a two-year graded death benefit — if you die within the first two years from natural causes, the insurer returns your premiums plus interest rather than paying the full death benefit. Guaranteed issue is designed for people who cannot qualify for any other type of life insurance.