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Key Life Insurance Vocabulary to Understand (2024)

Life insurance is a crucial financial tool that provides protection for individuals and their families in the event of death. Understanding key terms associated with life insurance is essential when making decisions about what kind of policy to choose and the amount of coverage needed. Below is a list of key terms that will help you navigate the world of life insurance.

Premiums are the amount of money that policyholders pay to maintain their life insurance coverage. These payments are typically made on a monthly, quarterly, or annual basis and can vary based on factors such as age, gender, health history, and lifestyle. The more coverage you need, the higher your premiums will be. It’s important to note that premiums can remain fixed for the length of the policy, but some policies offer flexible payment options.

The death benefit is a lump-sum payment made to the designated beneficiary of the policy upon the death of the insured individual. This payment can help cover funeral costs, debts, or other financial losses resulting from the insured person’s passing.

The policyholder is the owner of the life insurance policy and has all legal rights to affect the policy. The insured is the individual whose life is covered by the policy and is required to provide personal information such as age, occupation, and medical history to be accepted for coverage.

The beneficiary is the individual or entity that will receive the death benefit upon the insured’s passing. Beneficiaries are typically designated during the policy purchase and can be changed as long as the policyholder is alive and legally competent.

Riders are additional coverage options that can be added to a life insurance policy for extra protection at an additional cost. Riders can cover a variety of situations such as waiver of premium due to disability, chronic illness, long-term care, critical illness, accidental death, or dismemberment.

Underwriting is the process of assessing risk and determining an individual’s eligibility for life insurance coverage. This process involves reviewing an individual’s health through a medical exam and application to calculate a premium rate based on the individual’s risk to the insurance company.

The surrender value of a permanent life insurance policy is the amount of money that a policyholder may withdraw when canceling the policy before it reaches maturity. Mutual life insurance companies are insurers owned by policyholders who also benefit from the company’s profits through dividends.

The face value of a life insurance policy is its death benefit, while the cash value account represents a portion of premium payments that can be borrowed against, withdrawn from, or used to pay premiums. It’s important to be aware that withdrawing from the cash value account can affect future death benefits.

In conclusion, understanding key terms such as beneficiary, riders, premiums, and cash value is essential when purchasing life insurance. By familiarizing yourself with these terms, you can make informed decisions about the type of policy and coverage that best suits your needs.

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