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Life insurance is a legal contract between a company and an individual purchasing life insurance. Life insurance can be the security blanket you have been looking for. Life insurance can make you tension free about the financial security of your family in case something happens to you. Life insurance covers are safe and secure and provides for your family even after your death. It can also be a lucrative investment option. Life insurance companies often introduce several jargons that are difficult to understand. To help you understand these terms, we bring forth a comprehendible version of the life insurance glossary terms.
Death benefit
It is the money your family or the nominee will get when you are dead. It depends on many factors; also you can reduce it in case you take policy loan. Death benefit should be high.
Face amount
It is also the death benefit. However in case the policy matures early while the person is still alive it is called face amount.
Coverage amount
It is the amount for which you are insured. It should be sufficiently high, at least five times your annual salary as is the custom. High coverage amount however results in higher premium rates as the company would have to pay more.
Premium Amount
It is the amount which the insured person pays to the company. It can be a yearly amount or quarterly amount as decided upon by the company and the customer. It should be lower as money is going from your pocket into the company's pocket. It can be both inflexible and flexible depending on the type of insurance policy. If premium is not paid on time then the company can cancel the policy i.e. the policy is lapsed and insurance cover is removed.
Time period
It is the time for which you are insured by the company. It can be your whole life, or some fixed amount of time. It can be ten years, or fifteen years, or 25 years too. It is an important part of term insurance.
Cash buildup
Some policies allow your face amount to increase. Your premium amount will vary but you can get more benefits when your policy matures and higher returns.
Insurance owner
The person who takes out the insurance is called insurance owner. It may or may not be same as the insured person.
Insured person
It is the person who is insured by the insurance.
Whole life insurance
The insurance which is valid for whole life is called whole life insurance. It is hard to cancel and the policy can lapse if the premium isn't paid on time. The premium is high, the death benefits are guaranteed and your premium can stay the same. Hence it is pretty inflexible in nature. The policy will last for your whole life. Its real motive is not investment but more for the security. Your family can be sure of a getting a fixed payment.
Term insurance
It is the insurance which is valid for only a specific period of time. You can take out a policy for the period as selected by you. You can get the returns after the time period. The premium rates are also a lot lower than the permanent life insurance. The advantages are the cash buildup is high and you can get a good amount after that time period. But the disadvantage is that you lose the insurance cover as soon as the policy expires. You can also take a new policy after the completion of the policy. But if you suffer from any serious diseases the insurance company may decide to not give you insurance again. The insurance will again depend on your health and conditions and it may also cost much more.
Endowment
Endowments offer an early maturity period. It can be expensive and generally pays out when the insured person is of required age or the time period has expired.
Accidental insurance
These policies do not offer complete life cover. The only give you insurance and death benefits if you are in an accident and died due to any injuries. You may not get the benefits as they rarely pay out. It is however much cheaper than the total life insurance. If you are into danger sports, chances are that the company won't insure you. Sometimes ever professional racers aren't insured.
Variable life insurance
Variable life insurance combines a mortality charge with savings. Most companies offer many portfolios and various kinds of bonds too. There can be many types of portfolios on offer. You can either pay a fixed premium payment or a variable premium payment. Variable returns can fluctuate with the financial markets. Nowadays in current economy it is preferred that it is avoided.
Payment mode
You can get your returns through check. And you can pay the company through either cash or check or your credit card as is preferred by you.
Nominee
It is the person you nominate to receive the money after your death.
Mortality charge
It is the cost of the insurance production on a whole life product. It increases with the insured person's age.
Contestability period
It is period when the policy can be canceled by the company. It is generally the first two years. If the company finds any disputable claims they can also refuse to pay even in case of death. After this period the policy becomes incontestable.
Beneficiary
It is same as the nominee.
Annuity
An annuity is a contract with an insurance company. The insured person will pay an initial premium into a tax deferred account, which pays out a sum at predetermined intervals.
Insurance bond
Insurance bond is a single premium life assurance policy. Traditionally insurance bonds were with profits policies and are called with profit bonds.
Limited pay insurance
The insured person has to pay premiums just over the period of some time period only. Premium rates are higher.