In learning about life insurance, it is important to know some key definitions. By having some key terms well-defined, you won’t get tripped up while reading your application or policy. Most people never read their policies because they get tripped up on some of the terminology. You can visit our Life Insurance Glossary where you will find definitions on many of the words you will come across in your life insurance application and policy. Here are a few key words found in our glossary:
- Policy – The written statement of the agreement between insurer and insured (or policy owner, if other than the insured), including all endorsements and attached papers, which constitutes the entire contract of insurance. See contract and insurance policy.
- Death Benefit – In life insurance, the face amount, as stated in the policy, to be paid upon proof of death of the insured.
- Beneficiary – The person (or entity) to whom the proceeds of a life insurance policy are payable when the insured dies. There are various types of beneficiaries (see primary, contingent or secondary and tertiary beneficiaries).
- Term Life Insurance – Life insurance issued for a term of years, normally building up no cash value and expiring without value. Typical term periods are 10, 15, 20, 25 and 30 years.
- Permanent Life Insurance – A term loosely applied to cash value life insurance. This type of policy is meant to last a whole life, as opposed to term, which is in force for a specified period of time or term.
- Whole Life Insurance – A plan of insurance offering protection for the whole of life, proceeds being payable at death. Premiums may be paid under a continuous premium arrangement or on a limited payment basis for virtually any desired period of years.
- Cash Value – In a life insurance policy, the amount available to the owner when a policy is surrendered to the company. During the early policy years, the cash value is the reserve less a surrender charge. in the later policy years, the cash surrender value usually equals or closely approximates the reserve value.
- Underwriting – The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process includes rejection of risks.
I pulled these few out of the Glossary, as I thought these would be a good place to start. Visit the glossary when you get a chance and look up the definitions for any of the words that might have tripped you up previously.