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Life Insurance Terminology

One of the most confusing aspects of shopping for life insurance lies in trying to understand all the terminology used in the industry. Agents tend to talk to clients as if they already understand terms like lapse, rider and cash value and consumers often don’t want to admit that they aren’t exactly sure what these terms mean. Following are some of the most commonly used terms in the industry to help make your search for life insurance a little bit easier.

ACH: If your premiums are taken right out of your bank account without you having to write a check to the insurance company, that is an Automated Clearing House transaction, also called ACH.

Beneficiaries: When you have a life insurance policy you are allowed to name the people who will receive your policy proceeds after death. The people that you name are your beneficiaries. Your primary beneficiaries are your first choice in receiving the funds. Your contingent beneficiaries are those you want to name in case your primary beneficiaries are deceased at the time of your death and are unable to receive the death benefit.

Cash value: If you have a permanent policy then you pay a certain amount of premium above your actual insurance costs. This additional money accumulates forming your cash values. You can borrow against these funds or cancel your policy and take receipt of them.

Death benefit: Your life insurance policy provides a certain dollar benefit to your beneficiaries after your death. That dollar amount that they receive is called your death benefit.

In-force: When you pay your life insurance premiums on time and your policy is active, it is considered to be in-force.

Lapse: If you neglect to pay your premium on time then your policy will no longer be active or in-force and it will not pay your death benefit to your beneficiaries if you die. This is considered a lapse.

Permanent: Permanent insurance is any type of life insurance policy that is intended to pay out a death benefit upon death of the insured no matter when it happens after the policy is purchased.

Premium: The payment you must make to the insurance company on the agreed date in order to keep your policy in-force.

Rider: Added benefits and coverages that you attach to a standard life insurance policy are called riders.

Surrender: If you no longer want your life insurance policy, and it has cash values accumulated, you can terminate the policy in exchange for a check for the cash values. This is called a surrender.

Surrender charge: If you have had your policy for a short amount of time, generally less than 10 years, there will be a penalty against your cash value that reduces the surrender value of your policy. This is called a surrender charge.

Term: A term policy is one that pays a death benefit only if a death occurs during a certain period of time.

Underwriting: Before you can take out a life insurance policy, someone must review your application and make sure that you are a good risk for the life insurance company to take on. This is called underwriting and during this process your medical records may be reviewed along with blood and urinalysis results and other test results.

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One Response to “Life Insurance Terminology”

  1. Congratulations on your retirement, and best of luck in all your future endeavors.

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