Life insurance is a contract between an individual and an insurance company. In exchange for regular premium payments,
the insurance company agrees to provide a specified amount of money to the designated beneficiaries upon the policyholder's death. There are several key terms to understand
Premium
This is the amount you pay to the insurance company at regular intervals, usually monthly or annually, to maintain the policy.
Policyholder
The person who owns the life insurance policy and pays the premiums.
Beneficiary
The person or entity designated to receive the insurance payout upon the policyholder's death.
Death Benefit
The amount of money that is paid out to the beneficiaries when the policyholder passes away.
Term Life Insurance
This type of insurance provides coverage for a specific period, such as 10, 20, or 30 years. If the policyholder dies during this term, the death benefit is paid out. If the term ends and the policyholder is still alive, the coverage typically expires.
Whole Life Insurance
This is a permanent type of insurance that provides coverage for the entire lifetime of the policyholder. It also includes a savings component, known as the "cash value," which grows over time.
Cash Value
In whole life and some other types of insurance, a portion of the premium goes into a savings or investment account that accumulates over time and can be accessed by the policyholder.
Riders
These are optional add-ons to a life insurance policy that can provide additional coverage for specific circumstances, such as critical illness or disability.
Underwriting
The process by which the insurance company assesses the risk of insuring the individual and determines the premium based on factors such as age, health, and lifestyle.
Grace Period
A short period (usually 30 days) after a missed premium payment during which the policy remains in force. If the premium is paid within this period, coverage continues uninterrupted.
It's important to carefully review the terms of a life insurance policy, understand the type of coverage it offers, and ensure it aligns with your financial goals and needs.
