12 Terms you need to know before buying a LIFE INSURANCE
In buying a life insurance, you could be overwhelmed in all the terminologies that the insurance agent might tell you. Here are some common terms you need to know so that you will be in the same level of thinking of your agent. And you can even give an impression you’re smart and you REALLY know what she is talking about.
1. Premium – this simply means payment. How much you need to pay. Mode of payment could be monthly, quarterly, semi-annual and annual.
2. Policy – or policy contract. The contract you will get when you buy a life insurance. There, the coverage, benefits and payment are indicated. All you need to know about your contract is there.
3. Maturity date – the date at which the policy owner can get the face amount. Some matures by age (e.g. age 65) or after certain period of time like 20 years or 15 years. All depends on what you choose.
4. Regular pay – payment until termination of the policy or until maturity of the policy.
5. Limited pay – could be 5 years to pay, 10 years to pay or 15 years to pay. Payment is limited to specific number of years you choose. But coverage could be until lifetime or until maturity of the policy.
6. Coverage – the amount your beneficiary gets once you policy owner prematurely dies. In some programs, this is double the face amount.
7. Face amount – this could be the same as the coverage, but sometimes in other programs it is not (you need to ask). This is often the basis of computation of premiums.
8. Dividends – this is the yearly payment the insurance companies pay their policy holders. Meaning, policy holders can earn by dividends. Although these vary annually, could be 2% to 6% depending on the annual investment return of the company and are not guaranteed.
9. Riders – these are additional features you like to add to your basic insurance benefits. This entails additional cost to the additional benefits. Some examples of riders are: critical illness rider, accident insurance, disability insurance, hospitalization benefits and waiver of premium when policy holder becomes disable.
10. Contestability period – a short window period wherein insurance companies can investigate and deny claims. This is usually 2 years when policy was enforced. If you die within the contestability period, the company will investigate whether you gave accurate and honest information in your application.
11. Insurance Claims – Actual fulfilment of promises of payment of benefits in life insurance. This could be payment of the coverage to beneficiaries in case policy holder dies, or payment of riders to the policy holder. Example could be: payment of particular amount due to critical illness, once policy holder becomes critically ill and it happens the policy has a critical illness rider.
12. Beneficiary(ries) – predetermined person/s the policy holder indicated in the application who will benefit to the insurance claims once the policy owner dies before the maturity date. This could be his/her children or spouse or parents.
Buying life insurance is one of the most important thing you can do to yourself and your loved ones. It is major way of showing you love your family. If you think it is just an expense, think of this: Somebody will need to pay for it; it’s just a matter of who? You, now? Or your Family when you’re gone.
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When it comes to planning your future, NOW is always the best time to start. To learn more about Life insurance or if you need help with your financial plan/ goals, I will help you make it happen. Feel free to contact me.