10 Commonly Misunderstood Insurance Terms

Insurance lingo can be confusing, which can leave you feeling a bit overwhelmed, or even downright turned off if you’re trying to purchase a policy. Trying to understand terms like contestability period, underwriting, accelerated death benefit, and more can be enough to make you want to close your laptop and give up. Don’t worry, though, below are the most commonly misunderstood insurance terms with their definitions, so you can be a life insurance pro in no time!  

1. Accelerated Death Benefits illustration of a stack of money

Accelerated death benefits are a type of rider (see below) that can be added to a policy, which lets you use some of your life insurance death benefits before you pass away. This is usually meant for people who are terminally ill and need money to help pay their medical bills, such as bills for hospice care.

2. Annuity

You (or your beneficiaries) can choose how to receive your benefits after you pass away; an annuity is one choice that will give your beneficiaries an income for life. An annuity allows you to save money on taxes and is flexible in terms of how you get paid, when you get paid, and for how long you receive payments. Annuities are popular among retired people because they can offer protected income for the rest of their life.

3. Contestability Period

During the contestability period, which is a set amount of time after you’ve purchased your policy, your insurer will review your application to make sure you didn’t misrepresent anything; if you pass away during this time, your insurer might investigate (and possibly deny) claims. This period usually starts as soon as the policy is issued and will usually last for around 2 years.

4. Conversion Right

calendar with 31 days
If you miss a premium payment, some insurers will allow you a grace period.

If you have a term life insurance policy, you might be able to convert it into a permanent life insurance policy later on. Policies that include this option are known as conversion right term life insurance policies.

5. Grace Period

If something happens and you miss a premium payment, some insurers will allow you a grace period, or extra time to catch up on your payments, before they terminate your policy. This will usually only last around 30 days, and after it is over, you could lose your policy.

6. Insurable Interest

If you want to take out a life insurance policy on someone else (with their knowledge), you will have to prove insurable interest. This means you will have to show that you would suffer some kind of financial harm if the person were to die.

7. Living Benefits

Some life insurance policies will provide benefits while you are still alive, such as the accelerated death benefits mentioned earlier, long-term care benefits, and policy loans.

8. Preferred Rates

Cheaper, or “preferred,” rates are offered by insurers to applicants who are at a lower risk of dying. Life insurance companies decide who to offer preferred rates to by looking at health history, smoking habits, gender, and lifestyle.

9. Rider

This is an additional amount of coverage that you can add to your life insurance policy or an extra option that you can add for coverage, like a long-term care rider.

10. Underwritinganalytics on an ipad and paperwork next to it

This is the process that insurance companies use to decide if they want to offer you a policy, and what your rate will be. When you apply for life insurance, a professional called an underwriter will look at multiple factors, including your health and lifestyle, and make a decision.

Need Help?

Hopefully, you’re feeling more confident now that you know these common terms, so now it’s time to find the right policy for you! Remember, 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. There are many great affordable life insurance options to choose from that will provide enough money for your family, for a low monthly price. 

The best way to find the right life insurance policy for you and your specific needs is by working with an agent specializing 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.

About The Author:
Cassandra Love

With over a decade of helpful content experience Cassandra has dedicated her career to making sure people have access to relevant, easy to understand, and valuable information. After realizing a huge knowledge gap Cassandra spent years researching and working with health insurance companies to create accessible guides and articles to walk anyone through every aspect of the insurance process.

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