Life Insurance Terms That You Need to Know
People may think that life insurance is a very complicated thing, however, once you learn these terms that every person looking at life insurance should know, your life will be a whole lot easier. Understanding exactly what you need to know is a far better way to go into your life insurance journey so that no mistakes or miscommunication errors are created. A life insurance policy lets you protect your family even after you have died.
Life insurance can become confusing and overwhelming, especially when you are navigating your way through the process with little to no knowledge. However, it doesn’t have to be confusing if you do some reading and research beforehand. Learning the key terms and definitions can help you guide yourself through the process and become more confident while choosing between the different coverage options.
You may also feel more confident and knowledgeable when you are talking to your life insurance agent about general terms of your policy and while asking questions. Now, let’s take a look at the basic terms you need to know when it comes to life insurance.
Lapsed is a term used when it comes to your premium payments. When your premium payments are missed after the grace period that is applicable, your policy will be said to have lapsed. What happens when a policy has lapsed you may ask? Well, when a policy becomes lapsed, it is then terminated, and your death benefit will no longer be payable.
A term is essentially the period of time in which you are covered by your life insurance policy. It could be as little as a year or as long as up to forty years in some cases.
When a portion or the whole of your plan is replaced, this is called a replacement policy.
The person who is in charge of your death benefit and will receive it after you pass is called a beneficiary. As long as you have successfully paid your premium over the life of the policy, you will be entitled to a death benefit and your beneficiary will be the person to receive it. This can either be a single person or even be a collection of multiple people. It can also be an organization, trust, charity, among other significant options.
Irrevocable is an official term that is used to describe a beneficiary with a vested interest in regard to your life insurance policy death benefit. Usually, you won’t be able to make changes to an irrevocable beneficiary designation without the official consent of your beneficiary.
When you purchase a life insurance policy, this makes you the owner. Owners may also be known as policyholders in some cases. The owner is the person in charge of the policy and is the only one with authority and is able to receive information about the policy or make any changes to it.
When your underwriting process is underway, you will be given a health classification rating that allows them to give you a unique and desirable premium payment. It usually goes along the lines of, the younger and healthier you are, the lower your premiums. This is because you pose less risk to the carrier.
An add on to your life insurance policy is referred to as a rider. Usually, it will provide you with a specific benefit, however, some may be charged at an additional cost while others are free or included in a basic policy. That is just another thing to keep in mind.
Underwriting is something your insurance policy does to decide if you qualify and what your chosen rate will be for your specific policy.
The payments that you make to secure your life insurance policy are called premiums and are a reoccurring payment. They can be scheduled monthly, weekly, fortnightly, semi-annually, or annually, this of course all depends on the specific terms of your policy.
Term life insurance
When you are looking at a term life insurance policy, you are securing your policy for a specific amount of time. This time can be 10, 15, 20, 25, 30, or even 40 years depending on your needs and circumstances.
Whole life insurance
Whole life insurance essentially covers you for the whole term of your life with permanent coverage. As long as you pay your aforementioned premiums on time, you will receive the benefit at the end.
Universal life insurance
A life insurance policy with a cash value component is referred to as universal life insurance and is a permanent life insurance policy. It offers plenty of flexibility in premium payments and death benefits.
Life insurance really doesn’t have to confuse or overwhelm you, and with these terms in your mind, you will be able to seek the best and most favorable policy for you and your family even after you pass away.
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