Glossary Of Insurance Terms

Actual Cash Value (ACV)

The value of property or an asset at the time of loss, accounting for depreciation (how much the item has worn down over time).

Actuary

A mathematician who works for insurance companies to calculate risk. Actuaries use statistics, health data, and historical records to figure out how many claims an insurer is likely to pay in a given year - which is how they determine what your premium should be.

Adjusted Cost Base (ACB)

The original price you paid for an asset, including any additional costs associated with acquiring it. When you sell an asset or are deemed to have sold it at death, your capital gain is calculated as the difference between the fair market value and your adjusted cost base.

Asset

Anything of financial value that you own — such as your home, car, savings, investments, or insurance policies with cash valu

Auto Insurance

Coverage for financial losses related to owning or operating a vehicle, including damage, theft, and liability for injuries or damage caused to others.

Beneficiary

The person or persons you designate to receive the proceeds of an insurance policy — most commonly used in life insurance. Keeping your beneficiary designations up to date is a critical part of family planning.

Buy-Sell Agreement

A legally binding arrangement between business partners that determines what happens to a partner's share of the business if they die, become disabled, or leave. Life insurance is commonly used to fund a buy-sell agreement, ensuring the surviving partner has the cash to buy out the deceased partner's share rather than becoming co-owners with their family.

Capital Gain

The profit you make when an asset increases in value. Calculated as the selling price (or deemed selling price at death) minus the original purchase price (adjusted cost base). In Canada, a portion of capital gains is taxable as income.

Cash Value

The savings or investment portion that builds up inside certain permanent life insurance policies over time. It can often be borrowed against or withdrawn, though doing so may reduce the death benefit.

Charitable Bequest

A gift left to a charity through your will or through a life insurance policy designation. Naming a charity as a beneficiary on a life insurance policy is a simple and tax-efficient way to leave a meaningful gift without affecting the assets passed to your family.

Claim

A formal request made to an insurance company to receive payment for a covered loss or event.

Commission

The fee an insurance advisor or broker earns when they sell you a policy. Commissions are paid by the insurance company, not directly by you — but they are built into the cost of the product. Permanent life insurance products typically carry higher commissions than term policies, which is worth understanding when evaluating advice.

Compound Interest

Earning interest not just on your original savings, but also on the interest already accumulated. Over time, this can significantly grow savings and investments — which is why starting early matters so much.

Conversion Privilege

A feature in most Canadian term life insurance policies that gives you the right to convert your term policy to a permanent policy without a new medical exam, up to a certain age (typically 65). This preserves your access to permanent coverage regardless of future health changes, making it one of the most valuable — and most overlooked — features of a term policy.

Corporate-Owned Life Insurance

A life insurance policy owned and paid for by a corporation rather than an individual. Often used by incorporated business owners to protect against the tax liability triggered on their shares at death, or to fund a buy-sell agreement with a business partner. The death benefit is paid to the corporation, which can then distribute funds to shareholders.

Coverage

The financial protection your policy provides against specific risks or losses. Understanding what is and isn't covered is one of the most important steps in protecting your family.

CPP Survivor Benefits

Payments made by the Canada Pension Plan to the surviving spouse or dependent children of a deceased CPP contributor. The amount depends on how much the deceased had contributed to CPP during their working life. CPP survivor benefits are often not enough to replace a family's income on their own, which is why personal life insurance coverage remains essential.

Critical Illness Insurance

A policy that pays a lump sum upon diagnosis of a serious illness such as cancer, heart attack, or stroke. The funds can be used however you choose — to cover treatment costs, replace lost income, or support your family during recovery.

Death Benefit

The amount of money paid out to your beneficiaries when you pass away. This is the core purpose of a life insurance policy.

Deductible

The amount you agree to pay out of your own pocket before your insurance coverage kicks in. Choosing a higher deductible typically lowers your premium, but means more cost to you at the time of a claim.

Deemed Disposition

A rule in the Canadian Income Tax Act that treats you as having sold all of your capital property at fair market value at the moment of death, even though no actual sale occurred. This triggers capital gains tax on any accrued gains in your estate, payable before assets are distributed to your beneficiaries. Understanding deemed disposition is essential for anyone who owns investment property, a family cottage, or shares in a corporation.

Dependant

A person — most often a child or a spouse — who relies on you financially. Identifying your dependants is the starting point for understanding how much protection your family truly needs.

Disability Insurance

Coverage that replaces a portion of your income if you become unable to work due to an illness or injury. Since your ability to earn an income is one of your family's greatest financial assets, this is a critical but often overlooked area of protection.

Dividend

A payment made to policyholders of participating whole life insurance, based on the insurer's actual investment performance, mortality experience, and operating costs. If the insurer performs well, policyholders receive a share of the surplus. Dividends can be used to buy additional coverage, reduce premiums, or taken as cash. They are not guaranteed, though major Canadian insurers have paid them consistently for over 100 years.

Emergency Fund

Money set aside specifically to cover unexpected expenses or a sudden loss of income — typically enough to cover three to six months of living expenses. This is a financial safety net that works alongside your insurance coverage.

Employment Insurance (EI)

A federal government program that provides temporary income to Canadians who lose their jobs through no fault of their own. EI replaces approximately 55% of insurable earnings up to a maximum amount. It is not designed to replace disability insurance - EI does not cover illness beyond a limited period, and it does not apply if you are self-employed or incorporated.

Estate

Everything a person owns at the time of their death — including property, savings, investments, and personal belongings — that is passed on to their heirs or beneficiaries.

Estate Administration Tax

A provincial tax paid by the estate when a will is submitted for probate. In Ontario, it is approximately 1.5% of the total value of the estate above $50,000. Also known as probate fees. Life insurance proceeds paid directly to a named beneficiary bypass the estate entirely and are not subject to this tax.

Estate Planning

The process of organizing your affairs so that your assets are distributed according to your wishes after you pass away, while minimizing stress, costs, and taxes for those you leave behind.

Exclusion

A specific situation, condition, or event that a policy does not cover. Reading and understanding exclusions helps you identify gaps in your protection.

Executor

The person you appoint in your will to carry out your wishes, settle your estate, and ensure your assets are distributed properly after your death.

Final Expense Fund

A sum of money or insurance coverage set aside specifically to cover the costs associated with death - including funeral expenses, burial or cremation costs, and any outstanding small debts. A final expense fund ensures your family is not left scrambling to cover these costs at an already difficult time.

Financial Vulnerability

A state in which a family's financial wellbeing is exposed to risk because of gaps in protection, insufficient savings, or over-reliance on a single income. Recognizing financial vulnerability is the first step toward addressing it.

Grace Period

A short window of time — typically 30 days — after a missed payment during which your coverage remains active. If payment is not received within the grace period, the policy may lapse.

Group Benefits

Insurance coverage provided by an employer to their employees, typically including life insurance, disability insurance, and health and dental coverage. Group benefits are a valuable starting point but often provide less coverage than most employees assume - group life insurance typically covers only one to two times your salary, and group disability coverage disappears when you change jobs.

Group Disability Insurance

Disability insurance provided through an employer's group benefits plan. It typically replaces 60 to 70% of your salary if you cannot work due to illness or injury. The key limitation is that it uses broad definitions of disability, has income caps, and is tied to your employment - meaning you lose it the moment you leave your job or are let go.

Guardian

A person legally designated to care for your minor children if both parents are no longer able to. Naming a guardian is one of the most important decisions a parent can make.

Home Insurance (Homeowner's / Tenant's Insurance)

Coverage that protects your home, its contents, and your personal liability. Whether you own or rent, protecting the place where your family lives is a foundational step.

Income Replacement

The concept of ensuring that if your income were to stop — due to death, disability, or illness — your family would still have enough money to maintain their lifestyle and meet their financial obligations.

Indemnity

A core principle of insurance that aims to restore you financially to the position you were in before a loss occurred — not to leave you better or worse off.

Inflation

The gradual increase in the cost of goods and services over time. Inflation is important to consider when planning your insurance coverage and savings, as the money you have today may not go as far in the future.

Insurability

Your ability to qualify for insurance coverage at standard rates, based on your current age and health status. Insurability is not permanent - it can be lost or reduced through illness, injury, or age-related health changes. The younger and healthier you are when you purchase coverage, the better your insurability and the lower your premiums will be for the life of the policy.

Insurable Risk

A risk that meets the criteria to be covered by an insurance policy — meaning it is measurable, accidental in nature, and not something that affects everyone at the same time.

Lapse

When a policy becomes inactive due to non-payment of premiums. A lapsed policy means you no longer have coverage, leaving your family unprotected.

Liability

A legal responsibility you may have to compensate others for injury or damage you unintentionally cause. Liability coverage protects your family's finances if you are held responsible for someone else's loss.

Liability (Financial)

Money you owe to others, such as a mortgage, car loan, credit card debt, or student loan.

Life Insurance

A policy that pays a lump sum or ongoing payments to your chosen beneficiaries when you die. Its primary purpose is to ensure your family can maintain their standard of living and meet financial obligations without your income.

Life Insured

The person whose life is covered by an insurance policy. When the life insured dies, the death benefit is paid to the named beneficiaries. The life insured and the policyholder are often the same person, but not always - for example, a parent may own a policy on their child, making the child the life insured.

Liquidity

How quickly and easily an asset can be converted into cash without significant loss of value. Life insurance with cash value, for example, has some liquidity, whereas real estate does not.

Long-Term Care Insurance

Coverage that helps pay for care services — such as nursing home care, assisted living, or in-home care — when a person is no longer able to perform basic daily activities on their own due to age, illness, or disability.

Mortgage Protection Insurance

Coverage designed to pay off your outstanding mortgage balance if you die. It can take the form of a bank-offered mortgage life insurance product or a personally owned term life insurance policy. A personally owned term policy is generally more flexible and better value - the coverage amount stays fixed while your mortgage decreases, whereas bank mortgage insurance reduces in line with your balance.

Net Worth

The total value of everything you own (assets) minus everything you owe (liabilities). Understanding your net worth gives you a clear picture of your family's overall financial health.

No-Claims Discount (NCD)

A reduction in your premium offered as a reward for not making any claims over a specified period of time.

Non-Participating Whole Life Insurance

A type of permanent life insurance that provides lifetime coverage with fixed premiums and guaranteed cash value growth. Unlike participating whole life, it does not pay dividends. The insurer manages the cash value investments and the policyholder receives no share of any surplus. Simple, predictable, and more affordable than participating whole life — but slower and more conservative in cash value growth.

Own Occupation

A definition used in disability insurance policies that determines when you qualify for benefits. Under an own occupation definition, you are considered disabled if you cannot perform the specific duties of your own job — even if you could technically work in another capacity. This is the most favourable definition for professionals and is preferable to "any occupation" definitions, which only pay if you cannot work in any job at all.

Participating Account

The pool of funds managed by an insurance company that holds premiums from participating whole life policyholders. Investment returns, claims costs, and operating expenses are all managed within this account. When the account performs well, the surplus is distributed to policyholders as dividends.

Participating Whole Life Insurance

A type of permanent life insurance where policyholders share in the insurer's financial performance through annual dividends. It combines lifetime coverage with guaranteed cash value growth and the potential for additional returns. It is the most complex and most expensive permanent life insurance product, best suited to high-net-worth Canadians using it as a long-term estate planning or wealth transfer tool.

Peril

A specific risk or event that a policy is designed to protect against — such as death, disability, illness, fire, or theft.

Permanent Life Insurance

Life insurance that remains in force for your entire lifetime, as long as premiums are paid. It often includes a savings or investment component known as cash value.

Policy

A written agreement between you and an insurance company that spells out exactly what is covered, what is not, how much will be paid out, and under what conditions.

Policyholder

The person who owns the insurance policy and is responsible for paying the premiums.

Power of Attorney

A legal document that authorizes a trusted person to make financial or legal decisions on your behalf if you become unable to do so yourself.

Premium

The amount you pay — monthly, quarterly, or annually — to keep an insurance policy active. It's the cost of having protection in place before something goes wrong.

Probate

The legal process by which a court validates a deceased person's will and authorizes their executor to distribute the estate. Probate takes time, costs money in the form of provincial fees, and makes the contents of the will a matter of public record. Life insurance proceeds paid directly to a named beneficiary completely bypass the probate process.

Property and Casualty (P&C) Insurance

One of the two main branches of insurance in Canada. Property and casualty insurance protects your physical assets and your legal liability - including home, auto, tenant, and commercial insurance. The other branch is life and health insurance, which protects your income and your family in the event of death, disability, or illness.

Replacement Cost Value (RCV)

The amount it would cost to replace a lost or damaged item with a brand-new equivalent, without any deduction for depreciation.

Rider

An optional addition to a base insurance policy that extends or customizes your coverage. Riders allow you to tailor a policy to your family's specific needs.

Risk Management

The practice of identifying the financial risks your family faces and making deliberate decisions about how to handle them — whether through insurance, savings, or lifestyle choices.

Risk Pooling

The foundational principle that makes insurance work. When a large group of people each contribute small premiums into a shared pool, the cost of any one person's catastrophic loss is spread across the entire group. No single person can predict whether they will make a claim, but an insurer can accurately predict how many claims the group as a whole will generate - making the system financially stable for everyone.

Risk Profile

A summary of the factors that determine how likely you are to make an insurance claim. In life insurance, your risk profile typically includes your age, sex, health history, smoking status, occupation, and family medical history. A lower-risk profile means lower premiums. Your risk profile is assessed at the time of underwriting and generally locked in for the duration of your policy.

RRSP (Registered Retirement Savings Plan)

A government-registered account that allows Canadians to save for retirement while deferring income tax on contributions and investment growth. Contributions reduce your taxable income in the year they are made, and taxes are only paid when funds are withdrawn. RRSPs are mentioned in the context of permanent life insurance, which is sometimes used as a tax-sheltering tool by high-net-worth Canadians who have already maximized their RRSP and TFSA contribution room.

Subrogation

When an insurer pays a claim on your behalf and then pursues the responsible party to recover those costs. This process happens in the background and generally does not affect the policyholder.

Sum Insured

The maximum dollar amount an insurer will pay for a covered loss. It's important to make sure your limits are high enough to actually protect what matters most to you.

Tax-Advantaged

A description applied to financial products or accounts where growth, income, or withdrawals receive preferential tax treatment under Canadian tax law. The cash value inside a permanent life insurance policy grows on a tax-advantaged basis - meaning you do not pay tax on the growth each year, only when funds are accessed in certain ways.

Term Life Insurance

Life insurance that provides coverage for a defined period of time — such as 10, 20, or 30 years. If you pass away during the term, your beneficiaries receive the payout.

Term to 100 (T-100)

A uniquely Canadian permanent life insurance product. Despite the word "term" in its name, T-100 belongs to the permanent insurance family - coverage lasts for your entire life and never expires. It carries no cash value component, which makes it less expensive than whole life or universal life. Premiums are level and guaranteed, paid until age 100, after which coverage continues at no further cost. The simplest and most affordable permanent product available in Canada.

TFSA (Tax-Free Savings Account)

A government-registered account that allows Canadians to save and invest money completely tax-free. Unlike an RRSP, contributions to a TFSA are not tax-deductible, but all growth and withdrawals are tax-free. TFSAs are mentioned in the context of permanent life insurance, which is sometimes considered by Canadians who have maximized both their RRSP and TFSA room and are looking for additional tax-efficient savings vehicles.

Third Party

A person who is not the policyholder or the insurer but who may be affected by or involved in a claim.

Umbrella Insurance

Extra liability coverage that goes beyond the limits of your existing home or auto policies. It provides an additional layer of financial protection for your family in the event of a large or unexpected claim.

Underinsurance

A situation where the coverage you have is not sufficient to fully replace or compensate for a loss. Being underinsured can leave your family financially vulnerable when it matters most.

Underwriting

The process an insurance company uses to assess the level of risk associated with insuring a person, and to determine the appropriate premium. Factors may include age, health history, occupation, or lifestyle.

Universal Life Insurance

A type of permanent life insurance that combines lifetime coverage with a self-directed investment account. Unlike whole life, the policyholder controls the investment mix inside the policy and can adjust premiums within certain limits. The flexibility comes with added complexity - the policy can lapse if the investment account is underfunded. Best suited to sophisticated investors who have already maximized other tax-sheltered accounts.

Waiting Period

A set period of time after purchasing a policy before certain benefits become available. Understanding waiting periods helps you plan ahead and avoid surprises.

Wealth Transfer

The process of passing accumulated assets from one generation to the next, ideally in a tax-efficient way and according to your wishes. Life insurance is one of the most effective wealth transfer tools available to Canadians because proceeds pass directly to named beneficiaries, tax-free, outside the estate and without the delays and costs of probate.

Whole Life Insurance

A type of permanent life insurance that provides lifetime coverage with fixed premiums and a guaranteed cash value component that grows over time. The insurer manages the investments within the policy. Whole life comes in two forms: non-participating (no dividends) and participating (eligible for dividends based on insurer performance). More expensive than term life, but provides certainty, permanence, and a savings element that term does not.

Will

A legal document that states how you want your assets distributed after you die and who you want to care for any minor children. Without a will, these decisions are left to the courts.