Shopping for life insurance quotes can be confusing, and it’s even worse when you find yourself confronted with insurance jargon you don’t quite understand. A grasp of the common life insurance terms you are likely to encounter makes it easier to choose the right policy for your needs and make certain you are covered fully and properly. These terms will often come up when you’re looking to buy a life insurance policy, and are easy to understand once you have a basic idea of what they mean.
Term
When it comes to life insurance, a term means more than a word. Term life insurance is actually a type of policy, and it’s called by that name because it only lasts for a set length of time, known as the term. While a universal or whole life policy does have a term as well, it is much longer and designed to last for the lifespan of the insured person. When discussing the policy term in life insurance, you’re talking about how long the policy will be in force for before it must be renewed, converted, or will expire.
Permanent Insurance
A permanent insurance policy is a type of policy designed to be in place for your entire life. Most commonly these are whole life or universal life policies. Because they are in place for so long, they are generally more expensive, but the premium will remain the same as long as you keep the policy in force.
Beneficiary
The beneficiary of your life insurance policy is the person to whom the death benefit will be paid upon your death. You can name a person, multiple people, or a trust as the beneficiary of your policy.
Cash Accumulation Account
When you consider a universal policy, you may hear about a cash accumulation account. This is one of the benefits of having such a policy. It allows you to put money aside in an account that will earn interest. This can later be borrowed against or surrendered. It will be paid out to the beneficiary along with the death benefit amount you have chosen. Connected with this term is the cash surrender value, which is the amount in the account available to you if you choose to request a surrender of the money.
Face Value
This is the amount of insurance you have taken out that you are paying a premium on. This amount will be paid out to your beneficiary upon your death, but may not be the total benefit. If you have a cash accumulation account as discussed above, that will be added to the face value to increase the death benefit. Also commonly referred to as the Face Amount.
Level Term
This is a policy that will carry the same face value, or death benefit, fur the duration of the term set out in the policy. Thus a 10-year level term policy would pay out the same amount in year one as in year ten.
Decreasing Term
This is a policy whose face value, or death benefit, decreases over time. These policies are often used for mortgage protection, reducing the required payout over time as the amount owed on the mortgage decreases. The premium amount does not decrease, only the death benefit.
Convertible
This is a term used to describe a policy that can be converted from one type to another. Most often it refers to term life insurance which can later be converted to whole or universal insurance. This allows you to review your insurance needs as the current term ends and choose to convert the policy at that time.
Accelerated Death Benefit
This may be an option on some policies, and it allows you to access some of the face value of the policy prior to death in the event of a terminal illness. The money can be used to help pay for medical bills and other needs during the last phase of a terminal illness. This may also be referred to as a living benefit.
Insurability
This is a term that refers to how insurable a person applying for life insurance might be. Most insurance companies have several rate classes for their premiums; people who are in good health will qualify for better rates than those with health problems currently or in the past. Some health conditions may result in the person being considered to not be insurable, meaning the risk of insuring that person is too high for the company to take on.
Life insurance is an important choice, so it’s a good idea to take the time to understand what the terminology means and to be certain of what you are purchasing. If you don’t understand a term related to your life insurance, ask your insurance professional. Knowledge is the key to choosing the right protection for your loved ones.
