The A-Z of Basic Life Insurance Terminology

Actuary, grace period, face amount, death benefit, riders: if you’re researching life insurance, you will come across a lot of terms that you might be unfamiliar with. Learning what all of these terms mean can be overwhelming, and doesn’t make the process of searching for the best policy for your family any easier. But it doesn’t have to be overwhelming! Once you learn the following basic life insurance terminology, it will all make more sense, and will make the search process easier.

Actuary

This is the person, typically an insurance industry math expert, who gathers and evaluates your data. They will determine your risk classification, and set your life insurance premiums based on the analysis of your information. 

Beneficiarymoney bags with a gavel and paper wit the word testament on it

This is the person who will receive your policy’s benefits when you pass away. You can select one or more beneficiaries, and can add or change them at any time.

Burial Insurance

A type of life insurance that only pays for the policy holder’s burial. Normally these policies will pay out between $5,000 and $25,000 in benefits. If your burial expenses are less than the benefit amount, your beneficiary gets to keep the rest. 

Contingent Beneficiary

This person will receive the policy’s benefits in the event that the primary beneficiary is no longer living when you pass away.

Cash Valuedifferent numerations of money bills laid out like a fan

With some types of life insurance, like whole life insurance and permanent life policies, you accumulate a cash value along with your death benefit. If you access your cash value, it may affect the amount of the death benefit your beneficiary will receive, or you might have to make additional premium payments to keep your policy up to date.

Cash Surrender value

This is the amount of money the insurance company pays you if you voluntarily terminate a life insurance policy that earned cash value before your death, or before your policy matures.

Conversion

Some policies have a provision that allows you to exchange your current policy for another life insurance policy, without any underwriting requirements. For example, you can convert a term life insurance policy into whole life insurance.

Death Benefit

This is the amount of money your beneficiary will get in the event of your passing. Typically they have the freedom to determine how to use that money for your things like funeral expenses, debts, and more.

Face Amount

This is the amount of coverage purchased, and paid out to your beneficiary in the case of your (the policy holder’s) death or at maturity of the policy.

Grace Period

This is the amount of time between your premium’s due date and the day that your policy will get canceled, or lapse.

Insurable Interest

This is when individuals who are related to you have to prove that they would suffer financially if you died, so they can be listed as a beneficiary on a policy.

Lapsegold clock

This is when your life insurance policy becomes inactive and coverage terminates due to non-payment past the grace period. 

Paid-up Insurance

Only available with whole life insurance policies, this is the amount of life insurance available with no premium payments due, after the surrender value accrues enough to cover the premium payments.

Premium

The payment you make to the life insurance company for your coverage. You can opt to pay monthly, semi-annually, or annually. 

Rate Class

You will be assigned to a rate class during the underwriting process, which will dictate what you will pay for your life insurance coverage. 

Rider

Also sometimes called an endorsement, a rider is add-on coverage to your policy that provides additional benefits or exclusions. 

Suicide Clause

medical record written on a paper
When you apply for permanent life insurance, you will have to undergo an underwriting process, which includes information about your medical record.

An agreement in life insurance policies that define the life insurance company’s liability in the event that you die by suicide. Typically, you will need to have held the policy for 2 years for your policy to cover death by suicide. 

Underwriting

The process used by insurers to review each new policy application. They will gather your medical and driving records, and assess your risk, so they can determine how much your premiums will be.  

Your family has financial obligations that will not go away when you are gone; they will need your help more than ever with their expenses, and the last thing you want them to worry about is money while they are grieving. The best way to understand how it all works, and find the right life insurance policy for you and your specific needs is by working with an agent who specializes in life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.

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