11 life insurance terms you should understand
Life insurance can be confusing. Especially the terms used to describe it. If you take the time to understand the way life insurance is explained and the terms used to talk about life insurance, you will have a foundation for a beneficial discussion with a financial representative.
The contract with the conditions agreed upon between the insurer and the insured, or policyholder.
The process the insurance company uses to decide if it will provide you with life insurance. Decisions are based on the potential risks associated with your age, current health, medical history, lifestyle, occupation, financial profile and other factors.
Money you pay for your insurance policy.
Individual you select to receive your death benefit.
Amount of money your insurance policy pays your beneficiaries in the event of your death.
Money from your premium put aside to grow in investments and earn interest over the length of time you own your policy.
An additional written agreement that is attached to your policy. It’s a change, or amendment, to your policy. Generally, a rider either expands or limits your policy’s benefits or coverage.
Accelerated death benefit rider
This type of rider pays some portion of the policy’s death benefit if the insured experiences a qualifying condition, such as a chronic, critical or terminal illness.
Dividends are a refund to the policyowner of a portion of their premiums that wasn’t needed to pay their share of the losses and expenses experienced during a defined period—typically one year. Whole life insurance is the most common type of life insurance to earn dividends.
Permanent life insurance
Permanent insurance lasts the duration of your life and combines death benefit protection with the ability to build cash value.
Term life insurance
Insurance that provides protection for a specific period of time. It is less expensive than other types of life insurance, but does not grow in value.