Life insurance is an important financial product that can provide financial security for your loved ones in case of your unexpected death. However, life insurance policies can be complicated, and it’s important to understand the terms and conditions before signing on the dotted line. Here are some of the most important life insurance terms that you should know to understand your contract better.
- Premium: This is the amount of money that you pay to the insurance company to keep your policy in force. Premiums can be paid monthly, quarterly, semi-annually, or annually.
- Death benefit: This is the amount of money that is paid to your beneficiaries when you die. The death benefit can be a fixed amount or it can be tied to the value of your policy.
- Beneficiary: This is the person or entity who will receive the death benefit when you die. You can name one or more beneficiaries, and you can change your beneficiaries at any time.
- Policy term: This is the length of time that your policy will be in force. Term life insurance policies typically last for 10, 20, or 30 years, while permanent life insurance policies can last for your entire life.
- Cash value: This is the value of your policy that you can access while you are still alive. Cash value is only available with permanent life insurance policies and can be used for things like paying premiums, taking out loans, or withdrawing money.
- Surrender value: This is the amount of money that you will receive if you cancel your policy before the end of the term. Surrender value is only available with permanent life insurance policies and is typically lower than the cash value.
- Underwriting: This is the process that the insurance company uses to evaluate your risk and determine the cost of your policy. Factors that are considered during underwriting include your age, health, lifestyle, and occupation.
- Riders: These are additional features that you can add to your policy to customize your coverage. Riders can include things like accidental death coverage, disability coverage, or long-term care coverage.
- Guaranteed issue: This is a type of life insurance policy that does not require underwriting. Guaranteed issue policies are typically more expensive and offer lower death benefits than other types of life insurance policies.
- Exclusions: These are situations that are not covered by your life insurance policy. Exclusions can include things like suicide, drug or alcohol abuse, or participation in hazardous activities.
- Lapse: This is when your policy terminates due to non-payment of premiums. If your policy lapses, you will no longer be covered by the policy.
- Conversion: This is the process of converting a term life insurance policy into a permanent life insurance policy. Conversion is typically available during the term of the policy and may require additional underwriting.
- Waiver of premium: This is a rider that can be added to your policy to waive your premium payments if you become disabled and are unable to work.
- Accelerated death benefit: This is a rider that can be added to your policy to allow you to access a portion of your death benefit if you are diagnosed with a terminal illness.
- Incontestability clause: This is a provision in your policy that limits the insurance company’s ability to challenge the validity of your policy after a certain period of time has passed.
Understanding these life insurance terms can help you make an informed decision when purchasing a policy and can help you better understand the terms and conditions of your contract. It’s important to read your policy carefully and ask your insurance agent or broker any questions you may have. By taking the time to understand your life insurance policy, you can ensure that you have the coverage you need to protect your loved ones in case of your unexpected death.