Life insurance can be a complicated thing if you don’t know what you’re talking about. The industry has terminology that they have been using for years upon years. This confusing terminology has often times prevented many people from making decisions about getting life insurance.
What’s shocking is that most people who purchase life insurance policies have no idea what they bought. And most times, if they don’t understand what they bought, they might not have got the proper coverage.
So, here’s a way to help you understand a little bit more about the life insurance world and it’s terminology:
Life Insurance Terms You Should Know:
Term Life Insurance
This kind of policy lasts for only a specific number of years. You have the ability to choose from 10, 20, 25 or 30 years of coverage.
Permanent Life Insurance
This kind of policy lasts for the span of your entire life and it also factors in cash value. Whole life or Universal life is a type of permanent life insurance.
This is the person who buys your policy and also has control of it. This person may or may not be the one who is insured on the policy. Example – a husband could own a policy on his wife. The policy owner is the only person who can change the beneficiary and get policy details from the insurer.
Kind of self-explanatory, the person whose life is getting insured.
Amount of money you pay for insurance. Typically, you get quoted per month or annually, as these are the two most popular options.
On your policy, this will be the person who receives the life insurance payout. You may have more than one beneficiary, but by doing so, you will need to split up the percentages to equal 100%. Example: Naming your spouse and child as beneficiaries – your spouse would get 50% and your child would receive the other half.
Life insurance money which is paid to the beneficiary.
Accelerated Death Benefit
As mentioned above, this policy feature lets you receive some of the life insurance payout early if you are terminally ill. Some insurers will often times call this a “living benefit.” It is typically a free feature on your policy, so make sure it has it!
If you purchase permanent life insurance, a part of your payment goes into what’s called a “cash value” account. This account grows in value over time. You could take a loan against the cash value and use the money for whatever you want.
This process happens once you send your application (and most times, medical exam) in to the company you’ve applied for life insurance with. During this time, the insurance company will evaluate the risk of insuring you and will determine your life insurance rate. During this process, the underwriter of your policy may or may not ask you questions regarding your medical records, prescription history and driving record.
It’s always important to be educated in everything you decide to do. Especially when making such crucial decisions such as buying a life insurance policy. Hopefully these terms will help you understand the life insurance industry some more and you can take these with you going into the process of buying a policy! If you’re still confused, don’t worry: your agent here at 1st Option Insurance will be more than happy to assist you with all of your questions. Don’t hesitate to ask. We’re here for you.
Ena Kalkan is a staff writer at 1st Option Insurance for Insurance News, a personal finance website.
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