Life Insurance Terms
Life insurance is a financial product that pays a death benefit to designated beneficiaries upon the insured person's death, providing them with financial security. It comes in two main types: term life insurance, which covers a specific period, and permanent life insurance, which offers lifelong coverage and includes a savings component called cash value. Key components of a policy include the policyholder, insured, beneficiary, and premium payments. Life insurance provides financial support for living expenses, debts, and education, giving peace of mind that loved ones are protected. Selecting the right policy involves considering individual needs, financial goals, and budget.
Policyholder:
The person who owns the life insurance policy and is responsible for paying the premiums.
Premium:
The amount of money the policyholder pays for the life insurance policy, typically on a monthly or annual basis.
Insured:
The person whose life is covered by the life insurance policy.
Term Life Insurance:
A type of life insurance that provides coverage for a specified period (or term) and pays a death benefit if the insured dies during that term.
Whole Life Insurance:
A type of permanent life insurance that provides coverage for the insured's entire life and includes a savings component called cash value.
Beneficiary:
The person(s) or entity designated to receive the death benefit when the insured dies.
Universal Life Insurance:
A type of permanent life insurance that offers flexible premiums and a cash value component that earns interest.
Death Benefit:
The amount of money paid to the beneficiary upon the insured's death
Cash Value:
A portion of the premium payments that accumulate over time in a permanent life insurance policy and can be borrowed against or withdrawn.
Surrender Value:
The amount of money a policyholder will receive if they cancel a permanent life insurance policy before the insured's death.
Rider:
An add-on to a life insurance policy that provides additional benefits or coverage options, such as accelerated death benefits or waiver of premium.
Underwriting:
The process used by insurance companies to assess the risk of insuring an applicant and determine the appropriate premium.
Face Value:
The amount of death benefit stated in the life insurance policy.
Contestability Period:
A period (usually two years) during which the insurance company can investigate and deny claims based on misrepresentations made in the application.
Guaranteed Insurability Rider:
​An option that allows the policyholder to purchase additional insurance at specified times without providing evidence of insurability
Conversion Option:
The ability to convert a term life insurance policy to a permanent life insurance policy without undergoing a medical exam.
Dividend
A payment made to policyholders of participating whole life insurance policies from the insurer's surplus profits.
Exclusions:
Specific conditions or circumstances that are not covered by the life insurance policy.
Free Look Period:
A specified period during which the policyholder can review the policy and cancel it for a full refund if not satisfied.
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