Term Life Insurance Definitions
Navigating the world of term life insurance may feel like learning a new language, especially if you're new to the world of life insurance. Even those who have already purchased a policy, though, may not fully understand what they purchased.
A 2015 survey from J.D. Power and Associates found that 46% of individual life insurance customers "don't have a complete understanding of their policy," which could mean that they did not purchase the right amount or type of coverage for their needs. To help prevent this from happening to you, we've outlined some must-know term life insurance lingo that could make the application and purchase process easier to understand.
When you're applying for term life insurance....
You may come across these terms when getting a quote or filling out an application for term life insurance, whether it's online, over the phone, or in person.
Agent: An agent is a representative of the insurance company who provides service to the policyholder on behalf of the insurer. An agent is licensed by the state to sell life insurance and will often be your "point of contact" for questions related to your policy and benefits.
Policyowner: The policy-owner buys and controls the insurance policy. This person is typically the one whose life is insured, but not always. The owner could be a spouse or a close relative of the insured, or even a partnership or a corporation. The policyowner is the only one who can change the beneficiary information and get policy information from the insurer.
Term: If you have term life insurance, this is the period of time, or "term," in which your coverage will be in force. Different insurance carriers offer different term periods, anywhere from one year to 30 years. Generally, as long as your premium is paid during the term, your policy will stay in force and your beneficiary/beneficiaries will receive the proceeds from your policy in the event of your death.
Underwriting: This is the process by which the life insurance company determines whether it will approve your application for insurance. During the underwriting process, an underwriter evaluates the risks of insuring you. They may look at your age and past medical history. Some carriers will require a medical examination others may only require that you answer questions related to your health. The underwriting process may also help determine your premium amount.
Premium: The premium is the amount of money the policy owner agrees to pay for the life insurance policy. It can typically be paid in one sum, or can be broken out into regular, periodic installments.
Free Look Period: This is a period of time (typically 10-14 days) immediately after a life policy is issued during which the policyowner can evaluate the policy and decide if he wants to keep it. If he decides against keeping the policy, he can cancel the policy and receive a full refund of any premium or policy fee paid.
Once you've been approved for a policy…
You're likely to come across the following lingo once you've been approved for a policy. You may find these terms in your policy documents, in email communications about life insurance, or in talking with your life insurance company.
Power of Attorney: A general power of attorney is a document that gives broad powers to a person to act on your behalf if you cannot. The period of time varies by state. An insured who is not the policyowner cannot cancel the life policy or make any other changes to the policy without a power of attorney document from the owner granting him or her the authority to do so.
Community Property State: In a community property state, the proceeds of a life insurance policy could be considered community property. This means that your spouse could have a legal claim to a portion of the life insurance benefit under state law, even if they are not a designated beneficiary. If someone other than your spouse is named as a beneficiary, payment could be delayed until your spouse's claim is resolved. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Exclusions: Exclusions are specific circumstances or events that exclude a beneficiary from receiving payment upon the policyholder's death. Exclusions vary by state and insurance company. In the past, Fox Business points out that some life insurance companies would exclude coverage for such risks as acts of war, military service, aviation, or dangerous pastimes like scuba diving or mountain climbing. Many of these exclusions are now long gone.
Beneficiary: A beneficiary is a person who is named on the policy to receive payment upon death of the insured. A policyowner can designate multiple beneficiaries. A beneficiary does not have to be related to the insured. In fact, you could could even have the proceeds of your policy paid out to your favorite charity.
Death Benefit: The death benefit is the amount of money the life insurance company will pay to a beneficiary or to beneficiaries in the event of the insured's death.
Contestability Clause: A standard provision in most life insurance policies that provides for a brief window of time from the date policy is issued, typically two years, during which an insurer may investigate and contest a claim and void an insurance policy if there is representation and/or omissions made during the application process.
Buying Term Life Insurance
The best way to help ensure that you choose the right type and amount of life insurance is to understand the terms and language that are being used. If you have questions about term life insurance, don't hesitate to reach out to one of our friendly agents today. Call 1-877-GO-DIRECT to learn more about term life insurance and get your free quote!
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