When you’re scanning through options for life insurance and trying to decide which type is right for you, it’s likely that you’ll come across a lot of unfamiliar terms, especially if financial planning isn’t your forte. Luckily there are lots of tools you can use to help you make sense of it all.
Here are ten basic but potentially confusing terms in the life insurance world, including what life insurance actually is!
- Life insurance – provides a benefit to the beneficiary upon the insured’s death. However, the length of time the insured is covered will depend on the type of life insurance he/she has.
- Term life insurance – will pay a benefit to the beneficiary if the insured passes away during a specified period.
- Universal life insurance – this is permanent life insurance that also builds cash value through the interest that is credited by the insuring company.
- Index Universal life insurance – permanent life insurance that offers flexible insurance premiums combined with an index account. The index account provides the potential for earnings based on an index.
- Whole life insurance – unlike term life insurance, this option will insure you for your entire lifetime, as long as your premiums are paid.
- Underwriting – this is the process used by insurance companies to assess a customer’s risk level for the coverage applied for before accepting his/her application. It also means a customer may need to undergo a physical, though that’s not the case for everyone.
- Rider – these are optional additions to your insurance policy, and can add extra protection for the insured as well as the beneficiaries. Adding these may also increase your premium.
- Cash value – the amount that has accumulated in your life insurance policy. If a policy is canceled, the policyholder still gets the cash value back. Though this isn’t applicable in all types of life insurance since some don’t accumulate cash value.
- Total and permanent disability coverage – additional protection that insures the policyholder should he/she become totally and permanently disabled during the insured term.
- Index – a stock’s performance is evaluated against this benchmark. Some common indices are the S&P 500, Dow Jones, and NASDAQ.
Now that you know some of the basic terms, it’s time to start planning! If you’re still not quite sure about how you want to prepare, don’t worry! You’re not alone. Reach out to an Robert J Russell and talk about which option is best for you.