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Life insurance has mixed connotations in today’s society. Some see it as a practicality while others see it as companies earning money of dead people. What exactly is life insurance? It is simply a way of ensuring that in the event of your death, those that you leave behind are taken care of. In this sense, life insurance is definitely a practical thing to do. However, taking out life insurance may get a little bit complicated at times. There is a lot of terminology that gets the average person confused. Here is a guide that will help you sort all those terms out.
Policy HolderThe policy holder is the person who takes out the life insurance. The policy holder can also be called policy owner. He is legally responsible for paying off the insurance premiums.
Insurance PremiumsPremiums are basically the payments made to the insurance company. These payments should be made regularly and not missed so as to keep the insurance policy in effect. The dependent or beneficiary is the person who will receive the proceeds of the life insurance in the event that the policy holder dies. It is up to you to choose your dependent or beneficiary.
There are two major types of life insurance – term life insurance and permanent life insurance.
Term Life InsuranceTerm life insurance is a policy which provides coverage for a specific duration of time only. Commonly, policies may cover 5 years, 10 years, or until the policy holder reaches 65 years old. If the policy holder dies within the specified period, his beneficiary will receive a lump sum. Otherwise, the insurance policy is terminated. It can either be renewed or converted to the other type of insurance but it will be expensive.
Permanent Life Insurance - Also called Whole Life InsurancePermanent life insurance takes on different forms. The basic idea behind this type of insurance is the building up of cash value. Whole life insurance falls under this category. This type of insurance offers dividends and cash when the insurance policy matures. With whole life insurance, the premiums usually remain the same. A dividend is basically a portion of the premium that the policy holder has paid. It is paid back to the policy holder depending on some factors.
Variable Life InsuranceAnother type of permanent life insurance is variable life insurance. This is a favorite among many people as it not only offers dividends and cash upon maturity but the money is also invested and earns during the lifespan of the insurance.
Universal Life InsuranceUniversal life insurance on the other hand gives more flexibility to the policy holder. Death benefits and amount and timing of payments may also be adjusted in this type of policy.
Cash Surrender ValueIn some kinds of life insurance, you are allowed to withdraw cash amounts before maturity. This amount that you withdraw is called cash surrender value. Each time you do this, however, the death benefit will decrease and the chances of your insurances lapsing is higher.
Life Insurance AgentIf you are considering taking out a life insurance, you should do some research first. You can also contact an agent. This is the person who represents an insurance company and can answer all your questions regarding your policy. Prior to contacting an agent, however, take note of several factors. If you are of a certain age, say between 70 to 85 years old, most life insurance companies will consider you to have exceeded their age limit, and thus they won’t issue you a policy.
Life Insurance ApplicationOnce you have decided for sure to take out a policy, you have to fill out the APP or simply the application form. You have to state all the required information clearly as this will be the basis of your acceptance. As the applicant, you are legally held responsible for providing accurate information in the APP. Your attained age is one of the most important factors companies look into. It is basically your age at the moment of application.
AssignmentIf, for any reason at all, you want to transfer your life insurance policy to another person, you can do so. This is called assignment. However, different companies have different rules regarding assignment and it is best to take it up with your agent.
