Life Insurance Glossary
Before we get into the various types of life insurance, let’s go over a few terms that you are likely to run in to when you are looking at life insurance.
- The premium is the monthly payment that you are required to make to the insurance company.
- A lapsed policy is a policy that is no longer in force, typically because the insured failed to make the appropriate premium payments. Lapsed policies can often be reinstated if the missed premiums are paid up.
- The beneficiary(ies) is the person to whom the insurance company will pay the death benefit to when the person who is insured dies.
- Death Benefit
- The death benefit of a policy is the amount of money that wil be paid by the life insurance company upon the death of the person insured. The higher the death benefit, the higher the premiums will be.
- Permanent Insurance
- Permanent types of life insurance are policies that not only provide insurance, but also have a cash-value account associated with them. These policies do not lapse or expire until the cash value is depleted.
- Term Insurance
- Term insurance is insurance that is purchased for a specific term. It has no cash-value or savings component.
- Surrender Value
- The surrender value of a permanent life insurance policy is the amount of money that you will receive if you decide to close the policy. The surrender value is typically very very low in the first 10-15 years.
- Cash Value
- The cash value of a permanent life insurance policy is money that you have paid to the insurance company that they hold for you. These funds are held in a large variety of interest bearing accounts which earn a wide variety of interest rates, depending on the type of permanent life insurance policy you purchased. More on the cash value as we discuss the types of permanent life insurance in later posts.
Posted on 8 Jan 2009