Common Life Insurance Vocab
It can be difficult to research, apply for, and review life insurance without knowledge of some common vocabulary terms used in the policy descriptions. Here’s what you need to know to make life insurance easier to understand.
Term Life Insurance: This type of life insurance is bought in increments based on the term length needed. The most popular term lengths are 10, 15, 20 or 30 year terms. In most situations, folks purchase the term length they need to either get to the other end of their liability (for example when their kids are older), to get to the other side of a mortgage, or to get to age 65, which is the most quintessential retirement age.
Death Benefit: The amount of insurance you are purchasing. For example, it is really common to buy insurance in increments of a quarter million. You may have someone with a policy of $250,000 or $1.5 million. The death benefit is the amount of insurance you purchase that is paid out if and when you pass away.
Beneficiary: The person who receives the money if you pass away during the length of your life insurance policy. The most common beneficiaries are spouses, partners, or a sibling. It is important to name a beneficiary that is of equal age or younger. It is not common to name a beneficiary that is older or a parent, because in that scenario the person with the life insurance would potentially outlive the beneficiary. It is important to pick beneficiaries wisely to ensure that when you pass away your money is going where you need it to go and at the correct time.
Contingent Beneficiary: The beneficiary is the primary person, and the contingent beneficiary is the secondary person who receives the money if the beneficiary is not alive at the time of death. Secondary beneficiaries are typically children. Oftentimes, these funds go into a trust - in these cases, the trust is the beneficiary.
Trust: A document that is put into place stating where your money is going to go, when it goes, and what happens with your money when you pass away. Trusts are typically used when there are children involved, or family members with mental health illnesses.
Riders: Insurance add-ons that enhance your policy. The most frequently purchased rider is called AD&D, or the accidental death and dismemberment rider. If there is a serious injury, such as losing an arm or leg, the policy pays out some if not all of the death benefit even though the individual has not yet passed away. Another rider includes tacking on a small amount of insurance for a partner or for a child. Riders can also be added for additional purchasing later without underwriting. It is important to ensure the rider is appropriate based on need, and not just increasing the policy cost.
Having an in-depth knowledge of these key life insurance terms will assist you in making the right decisions when it comes to your own policy. Still have life insurance questions? Contact us to get them answered!
