Life Insurance Terms

Do you know the important Life Insurance terms and their definitions? Learn them here.

We can all agree that some sort of life insurance is a necessity for all families. There is often a lot of misunderstanding on the various aspects of insurance, the different types of insurance, different values. Also usually misunderstood are the different payment schedules, the various clauses that are inserted in any policy either by the insured or the insurance company as standard practice. An insurance agent will always explain his polices in detail, for only with full understanding can an effective choice be made. To tat end a summary of insurance terms is listed below:

Ordinary or Straight Life Insurance: In this policy the insured person pays premiums as long as he lives. Payment may be made on a monthly, quarterly, semi-annual, or annual basis. In nearly all cases the annual payment saves money for the buyer of the insurance, as the premium is lower. Upon death of the insured, the beneficiary (or beneficiaries) receive full payment of the face value of the policy. If annual dividends have been left to accumulate with the company at interest, this money too is paid out to the beneficiary.

Limited Payment Policy: With this type of insurance the premium is paid a stipulated number of years (10, l5, 20 years, and so on), and, at the end of the agreed period of time the insured pays no further premiums and is insured for life.

Endowment Policy: The insured pays premiums for a stipulated time. At the end of that time the face value of the policy is paid to the insured as indicated.

Annuity: In effect this is a form of pension plan. The insured pays a stipulated amount of money into the insurance company, either all at once, annually, or in any agreed-upon manner. At a specified age the insured receives a stated monthly sum of money for the rest of his life. Such sum may be made payable to him or to anyone else whom the insured party designates. In both the Endowment and Annuity, should the insured die before his payments into the company are completed, beneficiary receives the full face value of the policy.

Term Insurance: This form of insurance is taken out for a specified period of time, which may be one month, one year, or five years. An example of Term insurance is that policy sold in airline terminals, which is good for only the flight taken, and must be renewed with each succeeding flight. At the end of the specified time the insurance lapses and must be renewed. Except for the airline insurance noted, such renewals are usually at a higher premium. Since, as a rule, Term insurance has no surrender value it is cheaper to buy.

Cash Surrender Value: After an insurance policy has been in force for a stated length of time, it begins to have certain values. Cash surrender value means that when such a policy in force is cancelled or surrendered back to the insurance company, the insured person is paid back a certain percentage of the money he put into the policy.

Loan Value: This is the amount the insurance company will lend, at interest, to the insured, after the policy has been in force for a certain length of time.

Extended Insurance: If the insured person decides to cancel, or cannot pay the premium on a policy, that policy still has a certain amount of surrender value. In such case the cash amount in the surrender value can be applied as a premium payment, thus giving the insured person extended protection for a length of time equal to the amount of money granted by the insurance company to cover as much payment on the insurance premiums as this money will buy.

Paid-Up Insurance: This is the amount of insurance less than face value of the policy on which the insured has paid premiums, and for which the insurance company is liable.

Dividend: All life insurance policies pay some kind of dividend, large or small, which good management returns to the insured person. The insured may leave these dividends with the company at normal interest, or may accept the payment in cash.

Default and Lapse: This refers to the "grace period" of a policy, normally 30 days. The insured has 30 days from the time indicated on the policy as to payment due, to pay up the necessary premium. During this grace period the policy is in full force, and should the injured party die during this period the policy is payable to the beneficiary. If the premium is not paid by the end of the grace period, the policy lapses and is cancelled.

Cancellation: The insured person may cancel his policy and get the cash surrender value of the policy, provided there is no beneficiary with a vested interest in the policy. However, while the insured party may do this, the insurance company may not cancel of its own volition, unless the insured party is guilt of a breach of contract, or has misrepresented the facts in obtaining the policy. Even then the company has only a certain period of time in which to cancel. If it has not been done by that time, the policy remains in force and cannot be cancelled by the company.

Suicide: The insurance company may or may not enter a clause into the policy, whereby they will not pay if the insured party commits suicide. However, such a clause is only good for a stated period of time, and after that time the company is responsible for full payment in case of death.

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