Understanding Life Insurance

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Understanding Life Insurance

By: Barry Waxller

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.

Life insurance is the great safety net against all that life can throw you. That being said, it is hard to imagine another area of financial planning that uses such odd terminology. Well, let’s take some of the mystery out of the more common terms.

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.

The Amount At Risk on a policy is something insurers pay close attention to. It is the difference between the face amount of a Whole Life Insurance policy and the cash value. The amount at risk is the difference, to wit, the figure the insurer will have to pay out.

An Automatic Premium Loan is something you need to check for in your policy. It allows the insurance company to make a premium payment from the cash value in your policy should you miss the payment.

A Cash Refund Annuity is one with a catch up element. If you pass away and the total annuity payments are less than what you have paid in total premiums, the difference is paid to the beneficiary you have designated.

Many modern insurance policies contain a Contestable Clause. This gives the insurance company up to 2 years to void the policy if they find evidence that would have resulted in the rejection of the policy application when originally made.

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 Whole Life Insurance Policy is one of the staples of the life insurance industry. The policy provides a death benefit, but also accumulates cash within as premiums are paid in over time. There are many different ways to pay the premiums, so make sure to ask.

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!

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