Understanding the Language of Life Insurance Policies
While we all know that life insurance is a good thing because the premise is to provide for our loved ones upon our death, many of us aren’t aware of all the terminology. As a result, we don’t always make the right choices in policies. Following are a few of the terms you might come across when looking to buy an insurance policy.
Term Life: A term life insurance policy is just that, a policy set for a period (term) that will last until the death of a person as long as premiums continued to be paid. It has no cash value that is redeemable; nothing is paid until the death of the policy holder.
Whole Life: As opposed to a term life policy, a whole life insurance policy does have cash value at some future date, and that value is based on a number of factors, the greatest of which is how sound the investments are in which the underwriter placed the monies collected. The face value, or amount paid upon the death of the policy holder is not the same thing as the cash value for which the policy can be redeemed once it has matured.
Death Benefit: One thing to look for is the variables between accidental death benefits and benefits paid in terms of natural causes or illness. Some policies have very specific coverages in terms of the actual cause of death.
Coverage: As the word would imply, this simply means that certain things are covered, and if these conditions are met, the insurer agrees to pay the specified amount per that ‘coverage.’
Rider: A rider is actually an attachment to the life insurance policy that either adds coverages not specified previously, or restrict coverages based on contingencies set forth in the rider.
Face Value: The face value is simply the amount that will be paid upon the death of the insured. This insurance term can be used in reference to term life or whole life.
Cash Value: Cash value only comes into play with whole life insurance policies. Since a term life policy will only be paid if the policy is in force at the time of the insured’s death, there is no real cash value involved. However, a whole life policy is more like an investment that can be redeemed at some pre-specified point for its cash value which is based on the policy’s value when it is ‘cashed in.’
While there are many more insurance terms that an individual will come up against when looking for life insurance, these are common terms that tend to be obscure for many people.
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- Whole Life Insurance – Important Things You Need To Know
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