Common Life Insurance Terms Explained

Buying a life insurance policy is a good idea, but before you sign anything and make that first premium payment, you want to be sure you understand what you’re getting. If all the new terminology is making your eyes glaze over, read through this list of common terms to find out what they really mean.

Accelerated Death Benefit:

Typically, insurance companies only pass on the death benefit to the beneficiary after the death of the insured individual. However, in the case of an accelerated death benefit, the payout is available to the life assured in cases of terminal or chronic illness.

Accidental Death Insurance:

This is usually offered as an add-on to a regular life insurance plan by insurance companies. It is only paid out to the beneficiary if the insured individual passes away as a result of an accident.

Insurance Agent:

An agent is someone who is licensed by a certain state to negotiate life insurance contracts. An insurance agent can represent multiple companies, work independently, or represent just one company and sell policies for them.

Annuity:

The annuity is a certain sum of money that the insurance company pays at regular intervals, typically for life. Some life insurance plans, unlike term insurance policies, come with an annuity option. These plans are, however, more expensive than term plans.

Beneficiary:

The beneficiary receives all the proceeds from the life insurance company after the death of the insured individual. Life insurance buyers can pick one or multiple beneficiaries. However, if the beneficiary is under the age of 18 years, they must be represented either by a public official or a legal guardian. It’s important to note that just about anyone can be named by the policy buyer as their beneficiary.

Cost of Insurance:

The cost of insurance, also known as premium, is the amount of money that an individual must pay for their life insurance plan. This cost will vary from person to person based on their health condition at the time of buying the plan, their age and sex, etc.

Free-Look Period:

This is the period of time a life insurance buyer has to review the policy. Policy buyers can cancel and return the policy to the insurance company during this period if they are not satisfied with it.