A life insurance policy allows you to protect your family after you pass away. But navigating your way through the ins and outs of life insurance coverage can be confusing.
Learning key life insurance terms and definitions can help you feel more confident when it comes to choosing coverage that fits your needs. Additionally, you may feel more prepared when discussing your life insurance questions with your agent.
Below, find a glossary of basic life insurance terms to help you get started.
A beneficiary is who the death benefit will go to after you pass (as long as you have continued to pay your life insurance premium on time over the life of the policy). A beneficiary can include one or multiple people, as well as a charity, trust or organization, among other options.
The term "irrevocable" is used to describe a beneficiary with a vested interest in a life insurance policy's death benefit. You generally can't make changes to an irrevocable beneficiary designation without the consent of the beneficiary.
When premium payments are missed beyond the applicable grace period, the policy is said to be lapsed. When a policy is lapsed, the policy is terminated and no death benefit will be payable.
The owner is the person who owns the life insurance policy and is the only one with authority to receive information about the policy or make changes to the policy. Owners are also known as a policyholders.
The payments you make in order to keep your life insurance policy in force are called premiums. Depending on the terms of your policy when you purchase it, premiums can be scheduled monthly, quarterly, semi-annually or annually. One form of life insurance known as single premium life is funded with one lump sum at the time of purchase.
During the underwriting process, the life insurance company will give you a health classification rating. It's used to help determine premium payments. In general, the healthier and younger you are, the less risk you pose to the carrier which allows them to charge relatively less in premiums.
A replacement policy is one that is used to replace all or a portion of a current plan.
A rider is a type of add-on for a life insurance policy. It often provides a specific benefit. Some of these benefits can be included in the basic policy, while others come at an additional cost.
A term is the time period covered by a life insurance policy. It could be for as little as one year or as long as forty years in some cases.
Term life insurance
Term life insurance is a type of policy that covers a specific period, for example, 10, 15, 20, 25, 30 or 40 years.
This is the process an insurance company uses to determine if you qualify for insurance and what rate you will pay for your chosen policy.
Universal life insurance
Universal life insurance is a type of permanent life insurance policy that has a cash value component. It also offers flexibility in death benefits and premium payments.
Whole life insurance
Whole life insurance is another type of policy that provides permanent coverage for the remainder of your life. The policy is valid as long as you pay your required premium payments on time.
Life insurance doesn't have to confuse or overwhelm you. The more you understand about life insurance the better informed you will be when it comes time to choose the coverage for your needs. This is especially true when you hit different life stages, as you will have specific life insurance needs depending on your age and life events.
Learn more about the basics of life insurance.