Shopping for life insurance can feel a bit like learning a foreign language: You hear a lot of unfamiliar terms—and many of them can be confusing. So we’re here to help!
Whether you’re starting your search for a policy or you just got approved for one, here are eight must-know terms to add to your insurance vocabulary.
If You’re Shopping for a Policy…
Term life insurance
A type of policy that only gives you coverage for a limited period of time, generally from five to 30 years. The premiums are usually more affordable than permanent premiums, and remain fixed during the set term. The trade-off is that the premiums increase after the set term, potentially making the policy more expensive to renew.
Most term policies also allow you to convert to a permanent policy without having to undergo another medical examination. For a specified period of time, a “conversion option” enables you to purchase new coverage for a new set premium.
The amount a policy will pay out in the event of the death of the insured person. Generally, the more dependents and financial obligations you have, the greater the death benefit you may need.
If You’re Applying for a Policy…
The process through which an insurer decides whether it will provide you with life insurance based on potential risks associated with your age, past medical history and other factors. If you receive a policy, the underwriting process also helps determine what your premium may be.
The periodic payments you make in return for your insurance coverage, which can be in the form of annual, semi-annual, quarterly or monthly payments. The cost of your premium is typically based on the risk assessment results of the underwriting process. For example, if you have a pre-existing medical condition, it could increase your premium.
If You’ve Been Approved for a Policy…
The person who receives the death benefit, or payout, upon the death of the insured. You can name anyone—a spouse, child, relative and even a business associate. You could even have your proceeds paid to a trust or your favorite charity. And if your original beneficiary isn’t alive to receive the payout, you can name contingent beneficiaries.
A feature of some permanent life insurance policies that you could potentially withdraw or borrow from. (2) The cash value grows tax-deferred so you don’t pay taxes on the gains.
Benefits that you can add to your policy, usually for an additional premium. An example of a common rider is “disability waiver of premium,” which waives your policy’s premium if you become totally disabled and are unable to work.
This article was written by LearnVest from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.