Getting a Grip on Life Insurance Terminology

Life insurance is one of those things you need, but probably not something you look forward to buying. Make half an effort and you can save money by getting the best product for your situation.

A classic sketch of a conversation with a life insurance agent would show the person trying to buy a policy with their eyes glazed over. Why? The terminology being used is confusing. Well, let’s change that by discussing some or the common terms used.

References to Adjustable Premiums should be examined closely in any policy. This allows the insurance company to change the premiums on a block of policies during the term of the contract.

An Assignment refers to the transfer of the ownership of an insurance policy from one person to another person. The actual document required to do this is also called the same thing.

When you buy an insurance policy, you will be asked to designate a Beneficiary. This is the person that you want to receive the funds that will be paid out from the policy on the death of the life insured.

The Commutation Rights associated with an insurance policy apply to the beneficiary of the policy. Depending on the policy, the beneficiary may elect to convert installment payments to a lump sum payment.

Much like a secondary beneficiary, a Contingent Beneficiary is a person other than the primary beneficiary who will receive the death benefit. Some policies limit the beneficiaries at two people, but there can be more depending on your needs.

Although a basic concept, the term Death Benefit needs to be covered. While death may seem to have few benefits, this refers to the amount to be paid to beneficiaries upon the death of the person whose life it is based upon.

A Decreasing Term Policy is a creative product. As time passes, the death benefit decreases until it zeros out. This is often used to match the repayment of a large debt such as a mortgage. As the mortgage is paid off, there is less need for an insurance policy.

For many people, building up cash value in an insurance policy is a smart move. A Dividend Accumulation clause allows you to do just this, to wit, reinvest an dividend paid by the insurer back into the policy.

The most common type of life insurance is Term Insurance. Term policies vary in design, but you basically pay a premium for a death benefit. There is no cash build up in the policy. The policy has a capped term of five, ten or more years.

A Variable Life Insurance Policy is used both as a financial safety net and investment vehicle. The policy builds up cash value that can be invested. Depending on the policy, the premiums and death benefit will change as the cash value grows.

As with any area of financial planning, there are a vast number of terms used in the life insurance world. If you don’t understand a term used by an agent, ask for an explanation. Don’t be shy!