10 Top Words to Know When Buying Life Insurance

10 Top Words to Know When Buying Life Insurance

by Leslie Freeland, March 10, 2018

Knowing the Lingo.

The first time you buy life insurance, it can seem like someone wrote the application and policy in a foreign language. You may have never heard of some of the terms. Below, we use everyday language to explain the 10 most common terms that you’re likely to see when buying life insurance.

Beneficiaries: Beneficiaries are the people who receive the death benefit payout from your life insurance policy after you die. You should name both primary and secondary beneficiaries. The primary beneficiary is usually the spouse for married policyholders. In some states, you need the written permission of your husband or wife not to name him or her as primary beneficiary on your life insurance policy.

A secondary or contingent beneficiary is someone who would receive your death benefit if the primary beneficiary that you name passes away before you do. Secondary beneficiaries could be your adult children, grandchildren, or anyone else who you choose. However, it’s important for them to understand that they would not receive any money if the primary beneficiary outlives you.

Claim: When you pass away, the beneficiary of your policy is eligible to collect your death benefit. He or she will need to file what’s known as a claim to do so. Your beneficiary will need a certified copy of your death certificate to make a claim and the original life insurance contract if still available.

Death Benefit: A death benefit is the amount of money that the life insurance company pays to the beneficiary. If you don’t name anyone to receive the death benefit from your policy, the money will go into your estate.

The Insured: You are the insured on a life insurance policy if you are the one who the insurance company will pay death benefits to your beneficiaries. The insured and the policyholder are usually the same person, but not always. For example, a couple could decide to purchase a life insurance policy for each of their minor children. The couple would be the policyholder in this case and each child would be the insured.

Life Insurance: A life insurance policy pays money to a person or people you choose (your beneficiary) in advance upon your death. The money helps that person or people meet financial obligations that you paid with your salary while you were alive. Some common examples of financial obligations include mortgage or rent, food, transportation, healthcare costs and clothing. The life insurance money can be used any way the beneficiary likes, even to go on vacation or remodel their home.
Paramed Exam: Life insurance companies typically require a medical examination, also known as a paramed exam, when you apply for a policy. This exam normally takes place in your home and lasts for 15 to 30 minutes. Some exams require you to fast from everything but water for up to 12 hours to get the most accurate readings for underwriting purposes.
Premium: When a life insurance company approves your application, you agree to pay the stated monthly amount as your premium. In return, the life insurance company agrees to pay a death benefit to the people you have chosen after you pass away. The amount of your premium directly relates to the level of risk assigned to you by the life insurance underwriter.
Rider: A rider is something that you add to your original life insurance policy to provide extra benefits. One example of a life insurance rider is a Guaranteed Insurability Rider, also known as a Renewal Provision. With this rider, you can buy additional life insurance coverage when an underwriter approves your original policy without the need for another medical exam. This is helpful when you go through a significant life change. Common examples include a substantial income increase, the birth or adoption of a child, marriage or divorce.The Accidental Death Rider, also known as the Double Indemnity Rider, pays additional money to your beneficiaries if you die in an accident. As the name of the rider suggests, your beneficiaries would receive twice the face value of your policy if you die accidentally.

Underwriter: A life insurance underwriter is the person who collects and reviews your application for life insurance. It is his or her job to consider the level of risk the company takes to insure you. Some of the things an underwriter considers include your age, health, occupation and hobbies.

Underwriting: The underwriting process involves an underwriter evaluating your risks and then accepting or denying your application. A primary goal of underwriting is to determine your life expectancy based on your risk factors and demographics. A higher life expectancy means a lower risk for the life insurance provider.
 

 

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Asurea offers Life Insurance, Mortgage Protection Life Insurance, Medicare Supplement Insurance, Final Expense Insurance, Disability Insurance, Long-term Care Insurance, Retirement Planning products and more. For additional information, click on the ‘Get A Quote’ button below. Want to have articles just like this delivered to your inbox? Just enter your email address in the box below and click ‘Subscribe.’

This information is provided for general consumer educational purposes only and is not intended to provide legal, tax or investment advice.

 

Leslie Freeland

Leslie Freeland

Find her at LinkedIn
Leslie joined Asurea as the Marketing Communications Coordinator in February 2015. Since then, she has been working closely with insurance professionals to educate the public on the importance of life insurance and protect the public from common scams with informational articles.
Leslie Freeland

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