When shopping for life insurance, it helps to know a few key terms. Understanding the basics regarding the terms and meanings of words commonly found in life insurance policies will help you make wise and educated choices when selection protection for you and your family.
Cash Value
Some insurance policies invest premiums into stocks, mutual funds and bonds. In such cases, the policy may gradually accrue earnings. This value is known as the cash value of the policy, which can be likened to a savings account. A person may borrow accrued cash value in a policy for personal needs. The insured may pay the money back, or the borrowed amount will be deducted from the policy payout at death
Face Amount
The face amount of a policy is the amount of the death benefit that will be paid out under the terms of a life insurance policy.
Mortality Tables
The mortality table is a tool used by insurance companies to estimate the lifespan of applicants. Mortality tables are released annually by many insurance carriers. They show the average age of individuals living in a given area and compare their ages, their ages at death, the number of people in the study and causes of death. Mortality tables are used to help establish preium rates for applicants of various ages and lifestyles.
Owner of Policy
The policy owner is the individual who buys the life insurance policy. In most cases, this person is the individual whose life is insured by the policy, but may also be a spouse or an entity like a corporation or a partnership.
Beneficiary
The beneficiary is the individual, company, trust or partnership to whom the death benefits will be paid when the policyholder dies. One or more beneficiaries are named in the policy. There can be a primary beneficiary, such as a spouse or parent, and secondary beneficiaries, such as children, siblings or other relatives or friends of the policy holder. A contingent beneficiary may also be required, as the person the death benefits will revert to in the event the beneficiary dies before the insured.
Premium
Premium is the money that is paid to keep the life insurance policy in effect. For example, premiums for life insurance may be paid monthly, quarterly, semi-annually or annually. Some policies accept lump sum payments that pre-pay the policy for the insured's lifetime.
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