Whether you’re new to the life insurance world, starting your search, or just got approved, shopping for insurance can be challenging and confusing if you are unfamiliar with the terms that are used in the industry. To help you out, we’ve created an insurance jargon reference guide with terms and tips to help you better understand life insurance.
- Policyholder – This is you, the person who owns the insurance contract or policy.
- Life Insured – The life insured is the individual (such as yourself), whose life is insured under the policy.
- Premium – This is the amount of money you would pay to purchase your insurance policy. With most insurance companies, you will have the option to pay your premiums monthly, quarterly or annually.
- Insurance Contract (the policy in effect) – This is the legal agreement between you and the insurance company that sets out the terms of the insurance policy you purchase. This includes the application, the policy itself and the amendments attached.
- Death Benefit (also known as the proceeds on the policy) – This is the amount of money paid out by the insurance company to the individual that you have selected to receive the insurance money in the event of your, the life insured’s, death.
- Beneficiary – A beneficiary is the person who will receive the proceeds payable under your insurance policy. This could be your spouse, partner, or your child/children. Whoever they may be, it is up to you who you list as your beneficiary on the policy.
- Primary and Contingent Beneficiaries – The primary beneficiary is the person you choose to be first in line to receive the proceeds payable under your life insurance coverage when you, the life insured, pass away. The contingent beneficiary is your alternate choice or the person you choose to be second in line to receive the proceeds if your primary beneficiary dies before you.
- Term Life Insurance – This is a type of life insurance with a limited coverage period by years or by age. Once that period or “term” is up, the policy owner needs to decide whether to renew or to let the coverage end. If the life insured dies during the term of the coverage, the beneficiary will receive the death benefit. If the life insured does not die during the term of the coverage, no one gets the death benefit and the insurance coverage comes to an end.
- Renewable Term Insurance – A type of term life insurance that may be renewed at the end of each term to start another term, without having to provide evidence that you, as the life insured, are still insurable. However, each time the insurance renews, the premium will increase depending on your age as the life insured.
- Permanent Life Insurance – Life insurance that provides coverage for the entire life of the life insured as long as they continue to pay the premiums. There are different types of permanent insurance: whole life, universal life and variable life.
- Cash Value – This is the cash amount that builds up over time with some permanent life insurance policies. Depending on your plan, you may have the option to take a loan against the cash value of the policy or if you decide to cancel your policy, you’ll receive the cash value, minus any loans or outstanding premiums on the policy.
- Riders – Riders are coverages or benefits that can be added to your policy at any time to tailor it to your specific needs. You can add these for an additional premium.
- Critical Illness Insurance – Critical illness insurance offers the financial help to pay the costs associated with life-altering illnesses. If you become sick with an illness covered by your policy and survive the waiting period, you’ll receive a lump-sum cash payment. And, unlike reimbursed health insurance benefits, you decide how to spend the money.
- Undrwritineg – The process an insurance company goes through to decide whether or not to insure each individual. They do this by reviewing the life insurance application and any additional information to see whether the life insured is eligible for insurance coverage. Many factors are considered such as age and past medical history.
- Broker/Agent (also known as an advisor) – This individual is the first person you will speak with about getting your insurance policy started. They are licensed to sell different types of insurance such as life, group insurance, and even investment products. Brokers are here to help you decide which insurance option is best for you given your personal circumstances.
When it comes to a life insurance policy, remember to sit back and review your insurance needs regularly. Your personal circumstances will change over time and this will affect your insurance needs. If you ever have a question about any coverage stated on your policy that may look like insurance jargon, be sure to contact your insurance agent. They are always there to make sure you understand and are happy with the coverages you have in place.