It can sometimes feel like there’s a life insurance language barrier. Words and ideas seem designed to confuse and trick you. But you might be surprised by how simple the concepts and terms actually are once they’re explained.
Consider this article your personal life insurance phrasebook to help you cut through the lingo and better understand the products you’re exploring. Let’s start with the basics!
– Policy and Policy Holder A life insurance policy is a contract between you and an insurer stating that they will pay out a certain amount of money upon your passing (or another event specified in the policy). The policyholder is the person who owns and controls the policy.
– Death Benefit The money that gets paid out from the policy when you die.
– Beneficiary You, as the policyholder, get to decide where the death benefit will go. The people who receive the money are called beneficiaries. That could be a spouse, child, or anyone who depends on your income.
– Premium The payment you give the insurer in exchange for the life insurance policy is called the premium. You might have to pay these monthly or annually.
– Term Life Insurance Some life insurance covers you for a specific amount of time. Your beneficiaries only receive the death benefit if you pass away during that time frame. This is referred to as Term Life Insurance. It’s typically considered the most straightforward form of life insurance available.
– Permanent Life Insurance Another type of life insurance lasts for your entire life. This is called Permanent Life Insurance. There are multiple subcategories of permanent life insurance.
– Cash Value Some permanent life insurance options come with a savings component. This is called a Cash Value. You can usually borrow against the cash value and spend the money on whatever you please!
This isn’t an exhaustive list of life insurance words and phrases, but it should be the minimum to get you started. Consider reaching out to a financial advisor to act as your translator as you dive deeper into the language of life insurance!