Ever find yourself scratching your head and saying “huh” as you comb through the fine print of an insurance document? Or maybe you’re talking to an agent about getting insurance and are left sitting there looking bemused as they unload verbal jargon on you. Worry not, because with this guide you can become a pro in all things insurance terms so you’ll know the important terms like the back of your hand.
1. Permanent life insurance
Most people only know life insurance as a form of coverage that pays out when you die. What they don't grasp, however, is that permanent life insurance allows you to build wealth while you're still alive. In fact, many don't understand permanent life insurance in general. So the next time you see insurance terms like "permanent policy," know that you can provide a death benefit for your loved ones while also growing the cash-value of your coverage and access it later in life to spend on whatever you want.
2. Annuity
Some insurance companies offer instruments that help you save money on a tax-favored basis to create an income for life. These are known as annuities, and you choose one that meets your requirements–eg, you’ll pay for it immediately or over time–while deciding on when you’ll start taking payments and for how long.
3. Underwriting
Underwriting is common in the world of insurance and helps companies decide if they want to offer you a policy and at what rate. An underwriter does the underwriting, and they look at factors like your age, health, lifestyle, and even financial situation to come to a conclusion about insuring you.
4. Accelerated death benefit
Often used as a rider, an accelerated death benefit lets you use some of your life insurance death benefit before you pass away. It usually comes into action if you are terminally ill or can no longer work due to an injury that permanently puts you out of action. It's one of the most popular riders added on to life insurance.
5. Deductible
When you see the insurance term "deductible," it typically relates to the amount you're required to pay out of your own pocket before the insurer covers the remaining costs. It's also sometimes called "excess," and many insurance policies allow you to increase your deductible to save money on the premium you pay.
6. Conversion right
It's not uncommon to find some term life insurance policies where you can convert them into permanent coverage. When you can perform such an action, it's known as a "conversion right" and can help you keep your existing coverage while having the ability to build wealth with a permanent policy.
7. Long-term care insurance
Another popular rider, long-term care insurance helps if you're no longer fit and able to look after yourself. It will likely cover nursing homes, home health care costs, and adult daycare. A long-term care policy is particularly popular with women, who are living much longer than men and could potentially need care if their spouse passes away first.
8. Grace period
A grace period gives you time to think about whether you want to commit to a policy. Much like credit cards, you usually have a set amount of time before your first payment (usually 14 days to a month) where you can change your mind if you wish. However, once the grace period ends, you’ll commit to the full term of the agreed insurance policy.
9. Waiver
This is a clause that agrees to waive premium payments for a period of disability. It’s another rider that can be added to your life insurance policy and would see the renunciation or surrender of a known right of privilege.
10. Policy
Many people take out a policy without realizing what it actually means. Essentially, it's the contract between you and your insurer and features all the details (terms & conditions) of what you're insured for and how it all works. It also included exclusions that provide total transparency about the coverage you do and do not have. You can ask for a copy of your policy at any time by contacting your insurer.
11. Contestability period
The contestability period is a set amount of time after an insurer offers you life insurance. They can use the time to review your application and ensure that you didn't provide any false information that could affect your policy. The period starts from the moment your policy is issued, and it typically lasts for between 12 months and two years. The goal is to protect life insurance companies from fraud.
12. Insurable interest
With a life insurance policy, you're required to have an insurable interest in the person named on it. The policy states that you would suffer a form of financial harm if the person were to pass away. In insurance law, you're only able to purchase insurance for something or someone where you have an insurable interest.
In conclusion: The right insurance terms
It's essential that you understand your insurance policy, no matter the type of coverage you're getting. And with our explainers, you can be confident the next time you get coverage while impressing the agent and making sure you get the right policy for your needs.