Life Insurance Glossary
Insurance can be tricky whether you’re a first-time buyer or you’ve had a policy for years. Many people don’t even know most of the benefits of their policy or understand the terms and conditions when they sign their name and pay the premium. Here are a few things about life insurance policies that everyone needs to know – and in simple terms!
With life insurance, the first thing you need to do is familiarize yourself with some of the insurance jargon and what it means.
Life insurance Premium
Life insurance Policy term
Life insurance Premium payment term
Life insurance death benefit/face amount
Life insurance Survival benefit
Life insurance Renewal Period
Life insurance policy Grace period
Life insurance policy Lapse
Life insurance policy Reinstatement
Life insurance policy Exclusions
Life insurance Free-look period
Sometimes referred to as the Life Assured, it is the person who is covered by the insurance policy. So that means the life insured receives the benefits, right? Wrong!
The life insured is the person who is insured for say $1,000,000. If the life insured dies, then the beneficiary will receive the benefit.
This is the person, trust or business entity who will ultimately receive the death proceeds from the policy. Beneficiary designations can be pretty simple–leave 100% of the life insurance proceeds to your spouse, for example. However, when you’re doing estate planning work with trusts, guardians, and/or business partners, you need to spend some time to make sure that your beneficiary language mirrors your estate and business plans. Using just one word incorrectly can mean the difference between the correct child/ren, heirs, partners, and spouses getting the money, or someone inadvertently being left out of the proceeds. This can and does happen all to often. Changing beneficiaries is as simple as filling out a form. Here are some beneficiary horror stories to prove the point. Also, here’s a sample beneficiary form with a bunch of sample wording. The form is from Genworth.
A policyholder is usually synonymous with life insured except in a few cases. For example, when parents take out life insurance policies for their child, in those cases the policyholder will be the father or mother (whoever pays the premium) and the child will be the life insured.
Beneficiary – The beneficiary is the nominated person (someone the life insured likes!). This person is entitled to receive the benefits from the policy once the life insured is no more. Usually, people nominate their spouse, child, parents… Basically, the life insured picks somebody who they want to receive money from the policy.
Life Insurance Policy Term
This is the duration of the policy. Life insurance policies can cover you for 1 year or 2 years or 5 or 10, you get the gist. You can also take life insurance policies for up to the age of 100.
life insurance death benefit/face amount
The amount of money the beneficiary will receive upon the death of the life insured. This is also known as the claim amount.
Life Insurance Survival Benefit
If you survive till the end of the policy term, you might receive a survival or maturity benefit. This means if you don’t die, you’ll get the premiums you paid back plus a few more other benefits.This is a very old-fashioned term and not seen in modern policies. It’s very similar to an endowment policy used to fund retirement benefits decades ago. We don’t see this often in modern life insurance policies.
Life Insurance Renewal Period
Upon the maturity of the policy, you will be given the option to renew your policy and continue to be covered under the policy. For example, let’s say your 20 year term life policy period is coming to an end. You’ll get a notice from the life insurance company letting you know that you policy will enter the “renewal period” during which time you have the right to continue paying premiums, or to “renew” the policy. After the level premium period, renewal premiums are reset on an annual basis and escalate exponentially, often to the point where policyholder simply terminate their coverage.
Life insurance policy Grace period
Insurers usually grant a period of 30 days from the due date to pay the premium. Taking into consideration that people may have their own financial expenses that are of high priority than the life insurance, insurers grant this grace period.
Life Insurance Policy Lapse
If you fail to pay your premium, after the insurer has sent reminders and the grace period is over, your insurance policy will lapse. You’ll get about six notices from the company with late premium notices, grace period notices, and lapse termination notices.
Life Insurance Policy Reinstatement
If you want to reinstate or revive your old lapsed policy, you can do so by paying up all the unpaid premiums plus interest. Usually insurers allow you to reinstate your policy within 2 or 3 years from the due date of the first premium you didn’t pay.
Life Insurance Policy Exclusions
These are the events under which the life insurance company will not pay any benefits. Usually suicide is an exclusion for the first year of the policy. Other exclusions include death due to dangerous activities, dangerous sports, and so on.
Life Insurance Free-look Period
This is a period of 15 or 30 days granted to the buyer of the policy. The buyer can read the policy, review the terms and conditions. If they are not satisfied, they can return the policy and receive a refund of the premium. The insurer will deduct any charges borne to issue the policy in the first place.
Now that you know what all of these terms mean, will make a whole lot more sense. Read the offer document carefully before you make a decision. Always be sure to look for the following:
- The amount of premium you have to pay
- The premium payment tenure
- The Face amount (Death Benefit)
- Maturity benefits
These are the major Life Insurance Terms and Definitions you need to know.
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