When it comes to shopping for life insurance, it is easy to get confused and even a bit overwhelmed by the terms that are used to describe the various types of policies available. While some of the terms used to describe life insurance policies are the same or similar to the terms used with other
forms of insurance, there are other terms that are specific to the life insurance niche. Therefore, in order to make informed purchasing decisions and to make certain your loved ones are protected as much as possible, it is a good idea to become familiar with these terms and how they affect you.
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Basic Life Insurance Terms
You should be familiar with the basic life insurance terms if you are buying online or meeting with an agent. Some of the most basic life insurance terms that you should become familiar with include all of the following:
- Premium - the premium is the amount you pay on a regular basis in order to maintain the insurance policy. These payments may be made on a monthly, quarterly or annual basis.
- Convertibility - convertibility refers to the option to convert your policy from one type to another. For example, if you have a term policy, convertibility will allow you to change it to a whole life policy.
- Face Value - the face value is the original death benefit amount of your life insurance policy.
- Cash Value - the cash value is the value of your life insurance that can be borrowed against or cashed in.
- Beneficiary - your beneficiary is the person or people who will receive the benefit of your life insurance if you pass away.
- Paid Up - if your policy no longer requires premium payments because of prepayments or earnings, it is considered to be paid up.
Understanding Basic Forms of Life Insurance
In addition to understanding these basic insurance terms, it is also important to know more about the basic types of life insurance that are available. These include:
- Whole Life Insurance - so long as you continue to make your premium payments, you premium rate is locked in with this type of insurance policy. In addition, a whole life insurance policy features a savings component that increases in value while providing you with permanent protection for as
long as the policy is in place.
- Term Life Insurance - a term life insurance policy is only in place for a predetermined number of years. These policies can generally stay in place for anywhere from 1 to 30 years. The value of the policy does not increase over time and your premiums remain the same throughout the life of the
- Declining Balance Term Insurance - this form of insurance is a variation on term insurance and is often referred to as mortgage life insurance. This policy can be written to match the declining cost of your mortgage principal, though the premium remains the same. Once the mortgage has been
paid off, the policy expires.
- Universal Life Insurance - universal life insurance is similar to whole life insurance in that it has a savings component, but they are more flexible regarding the face value and the premiums.
- Variable Life Insurance - this type of policy provides fixed premiums while still providing you with some control over the cash value of the policy, as you can invest the funds in bonds, stocks or money market funds. As a result, the cash value and the death benefit of the policy will change
according to the performance of your investments.
- Universal Variable Life Insurance - like a variable policy, you choose the types of investments you want to make with a universal variable life insurance policy. There is, however, no guarantee regarding the original face value.
By gaining a greater understanding of these basic terms, you will find the process of searching for a life insurance policy to be much simpler and will be more likely to obtain the policy that best suits your needs. There are other types of policies
you should get familiar with.
Do not procrastinate and find out your rates today! The longer you wait, the more you'll pay for your life insurance policy.
Life insurance has never been this affordable and easy to get, check your rates today!