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By now you should be comfortable with the major categories of life insurance products and how they differ from one another. This chapter shifts focus to what happens inside an individual life insurance contract: the provisions that define the rights and duties of each party, the riders that customize a base policy, and the options that let a policyowner or beneficiary decide how policy values and proceeds are ultimately used.
Provisions are the standard terms that define the rights and obligations under the contract; most are required by law and appear in some form in nearly every policy. Riders are add-ons that modify the base policy, either increasing benefits (for an additional premium) or restricting them. Options describe the different ways a policyowner, insured, or beneficiary can elect to use cash values, dividends, or the death benefit itself.
| Term | Definition |
|---|---|
| Activities of daily living (ADLs) | The basic self-care tasks — bathing, dressing, eating, transferring, toileting, and continence — used to measure whether a person qualifies for long-term care benefits |
| Assignment | The transfer of some or all of a policyowner's rights to another party |
| Contingent beneficiary | The beneficiary entitled to the proceeds only if the primary beneficiary has died before the insured |
| NAIC | The National Association of Insurance Commissioners, an organization of state insurance regulators that develops model laws and standard policy provisions |
| Primary beneficiary | The beneficiary with the first claim to the death proceeds |
| Principal amount | The original sum invested, or the policy's face value, before any earnings or interest |
| Trust | A legal arrangement in which property or funds are held and managed by one party for the benefit of another |
Terms to Know