For many, understanding life insurance can seem impossible. There are many terms that those who aren’t in the industry would never have heard before they went to buy life insurance. For those who don’t really know what any of these life insurance terms mean check out this helpful guide of some of the most common terms:
Annuity: A fixed sum of money paid to someone each year, usually for the rest of their life.
Beneficiary: The person named in the policy who will receive the insurance proceeds at the death of the insured person. Anyone can be named as a beneficiary.
Cash surrender value: If the policy owner decides to voluntarily terminate their policy before it becomes payable by death or maturity, this is the amount available to them. The amount available is stated in the policy minus a surrender charge and any outstanding loans and any interest thereon.
Direct response: When an insurance company sells insurance directly to the insured through its own employees by mail or over the counter.
Evidence of insurability: A statement of proof of your health, finances and/or job. This helps the insurer decide if they want to take the risk to insure you or not.
Lapse rate: The rate at which life insurance policies terminate if you fail to pay your premiums. If a policy does lapse before enough premium payments are made to cover early policy expenses, then the company must make up this lost from remaining policyholders. As a result, the lapse rate will not affect the cost of the policy.
Policy proceeds: The amount of benefits payable when the insured dies or when the policy owner receives payment at surrender or maturity.
Rating: The basis for an additional charge to the standard premium. This happens because the insured person is classified as a greater than normal risk usually as a result of a health issue or having a hazardous occupation.
If you have any additional life insurance questions ask me on my twitter (@RonnyWPowell).