Life insurance is a contract between an individual and an insurance company. The individual (policyholder) pays regular
premiums in exchange for a payout to their beneficiaries upon their death. Here are a few key terms associated with life insurance:
Policyholder
The person who owns the life insurance policy and pays the premiums.
Premium
The amount of money paid by the policyholder to the insurance company at regular intervals (e.g., monthly, annually).
Beneficiary
The person(s) or entity designated to receive the insurance payout when the policyholder passes away.
Death Benefit
The amount of money that is paid out to the beneficiaries upon the death of the policyholder.
Term Life Insurance
Provides coverage for a specific period (term), such as 10, 20, or 30 years. If the policyholder dies during the term, the death benefit is paid out; otherwise, the coverage expires.
Whole Life Insurance
Provides lifelong coverage. It also has a cash value component that can grow over time and can be borrowed against or withdrawn.
Cash Value
The savings component of permanent life insurance policies, which can accumulate over time based on premiums paid and interest earned.
Premiums
The cost of the insurance coverage, which is determined by factors like age, health, coverage amount, and type of policy.
Underwriting
The process by which the insurance company assesses the risk of insuring an individual and determines the premium.
Riders
Optional features that can be added to a life insurance policy to customize coverage (e.g., accelerated death benefit, waiver of premium).
When considering life insurance, it's important to understand the different types of policies, their benefits, and how they align with your financial goals and needs.
