When looking to buy a life insurance policy, the focus is not only on the coverage. Sometimes, you need to know the life insurance key terms so you don’t get confused about what the meanings are.
In this article, we discuss the fourteen (14) most-popular life insurance basic concepts. They should help you know what the terms used by your agent and insurer are.
Life Insurance Terms Explained
Life insurance is a type of insurance policy that covers the life of the insured. The insured is the person or individual who holds a life insurance policy.
By now, you are already familiar with the terms, “insurer” and “insured.” At least, those two are what your life insurance company will use often to document the policy.
But those are just the tip of the iceberg on what the policy fully covers. While you may not have a life insurance terms and definitions PDF, it is worth knowing a few of these terms.
Life Insurance Keywords List
Below is a list of the life insurance terminology you are bound to come across when buying the policy:
1. Insurer
An insurer is a company that provides you with a life insurance policy. In some cases, these insurance companies hire agents who sell those policies to you.
But the buck of the transaction lies with the insurance company because it signs the documents with you to kick off the policy.
2. Insured
You are the “insured.” This is because you are the holder or beneficiary of the life insurance policy.
There may be a discrepancy in this case. For example, you are not the “insured” if you bought the life insurance policy for someone else. In that case, the person who the policy was bought for is insured and not you.
3. Policy Term
This is the duration for which the life insurance policy will be in force. This is also known by different names, such as:
- Term length
- Length of coverage
- Duration of coverage
Typically, the policy term is active as long as you keep paying the premium. It is renewable at the end of the initial length. For example, if the policy’s term is 10 years, you will renew it on the 11th year.
4. Contingent Owner
Life insurance companies have a “contingency plan” for the policyholders. This is generally known as “Contingent Owner.”
A Contingent Owner is a person who takes over the life insurance policy when the previous owner dies.
For example, you can make your wife the Contingent Owner. In the event you pass away, she will become the policyholder for the remaining duration of the policy.
5. Riders
Riders are “add-ons” or “additional policies” added to an existing life insurance policy. These additions are made if the original policy doesn’t cover some areas.
For example, you may want to add Hospital Bill, Accidental Death Benefit, or Critical Illness Cover as your rider.
That way, you will widen up the life insurance coverage and have more policy securities.
6. Final Expense Coverage
This type of coverage is added to help the insured get a “befitting burial.” The life insurer covers the cost of burying the policyholder.
A Final Expense coverage is also called “Burial Insurance.”
7. Approved
The life insurance terminology “Approved” refers to the approval or acceptance of your life insurance policy application.
Have in mind that there are two different types of approvals. The first is the Approved Other than Applied. This type of approval means that thepremium and health class in your life insurance quote will be different. The Approved as Applied means that both the premiums and health class are the same as the life insurance quote you received.
8. Premium
A Premium in a life insurance policy means the amount of money you pay the insurer to keep the policy in force. The payment is extended across the number of years the policy will be in force.
Your life insurance company can offer you different premium payment options. Popular payment plans are:
- Monthly
- Lump-Sum: This allows you to pay once to cover the premium for the policy’s term. You can then renew the policy by making another lump-sum payment or paying in batches.
- Quarterly
- Semi-annually
9. Agent
A Life Insurance Agent is someone who helps a life insurance company sell its policies. The agent is also your go-to guy for professional advice. There are two different types of life insurance agents. Click here to learn more about them.
10. Policy Value
Policy Value is the amount of money that your beneficiaries will receive from the insurer when you pass away.
Policy Value is also known by the following names:
- Face amount
- Payout amount
- Death benefit
- Proceeds
11. Coverage Start Date
This is the exact date that your life insurance policy becomes active.
12. Coverage End Date
This is the opposite of the Coverage Start Date. It is the date that the current policy term ends. You can renew the life insurance policy after then.
13. Dividends
Some life insurance policies are considered “investment vehicles.” That is why policyholders want to buy one and make some money on the side. This income is called “Dividends.”
Dividends are a portion of profits made by the life insurance company and distributed to the existing policyholders.
Wondering how life insurance companies make these dividends? Here are some scenarios:
- The insurance company generates profits from external investments in shares and other forms of capital assets.
- Profits are also made when fewer policyholders pass away. In that case, the insurer saves more money than it would have spent on paying death benefits.
The rule of thumb is that the insurer will distribute a portion of the additional profits to the policyholders as dividends.
14. Grace Period
So, your policy term has reached its coverage end date but you are unable to renew immediately. The life insurer can give you a “Grace Period” to renew the policy and pay the premium.
Grace Period implies the number of days policyholders are permitted to renew their expired life insurance policy.
The duration ranges by insurance companies, but it is typically 2 weeks from theend of the previous policy.
Conclusion
It is important to know these key terms in life insurance. Knowing these can help you understand what the “ambiguous words” in the policy are all about. Would you be able to elaborate on any of these life insurance key terms if you are asked to?
