Life insurance can be tricky and confusing. Many people avoid the topic of life insurance because it is a difficult topic to understand. Consequently, people are without coverage due to lack of knowledge of some field terminology. Therefore, one thing that can make life insurance easier is knowing some of the common life insurance terms. Once you are familiar with life insurance terms, talking about life insurance gets much easier. As a result, you are more equipped to cover yourself and your family. Here is a compilation of ten especially relevant terms in life insurance.
Key Life Insurance Terms
Agent – A state licensed representative for an insurance company. The individual is the middle man to solicit and negotiate contracts of insurance. An agent can be independent and represent more than one company, or they may only sell policies for one company.
Application – A statement of information made by a person applying for life insurance. This helps the insurance company assess the risk. These statements are the basis for risk classification and premium rate.
Beneficiary – The person named in the policy to receive the death benefit at the death of the insured.
Cash Surrender Value – The amount available in cash upon the voluntary end of a policy. This would happen before it becomes payable by death or maturity. The cash value is the policy amount minus the surrender charge, and any other outstanding charges.
Face Amount – The amount on the policy the company pays at death of the insured or maturity of the policy.
Policy – The printed legal document stating the terms of the insurance contract issued to the policyowner by the company.
Premium – The payment, or periodic payments, a policyowner agrees to make for an insurance policy. This could be one payment or a series of regular payments. A series of regular payments could be annually, semi-annually, quarterly, or monthly.
Rider – An endorsement to an insurance policy to modify clauses and provisions of the policy.
Risk Classification – The process in which a company decides how its premium rates should differ. This is based on risk characteristics of the individual. These characteristics can include age, occupation, gender, state of health, and many other factors. The resulting rules apply to individual applications.
Underwriting – The process in which a company accepts or denies an application for life insurance. Furthermore, this process provides the basis for the proper premium.
Since insurance is oftentimes overwhelmingly confusing, we want to shed light on this industry by answering YOUR questions about life insurance. So if you have any questions or concerns, comment below and your question may be the topic of our next article!
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