Don‘t worry, we’re not going to drop a whole dictionary on you of every single life insurance term. Not only would that be incredibly boring to read, but it also wouldn’t be helpful either. Instead, we’ve broken down some of the most common terms you’d hear and why they’re important to know. Things like “what does contingent mean in life insurance?” and “what is a beneficiary in life insurance?”
So, without further ado, here are some of the main terms you should know regarding life insurance.
What Is a Beneficiary in Life Insurance?
One of the most common words thrown around when it comes to life insurance is “beneficiary.” It simply means the person, people, or entities who will receive the death benefit when the insured person passes away. Most people usually name family members as their beneficiaries, but a beneficiary can be anyone and even include organizations like charities.
What Does Contingent Mean in Life Insurance?
What Does Contingent Mean in Life Insurance?Contingent means that something will only occur based on specific events, and it holds a similar meaning when it comes to life insurance. Typically, the term is used in conjunction with beneficiaries as in “contingent beneficiary.” A contingent beneficiary means that a person will receive insurance benefits if the primary beneficiary passes away.
Here’s a common example:
- A husband names his wife as a primary beneficiary
- If she passes away, he names his children as contingent beneficiaries (so even if his wife passes away his children still receive a payout)
What Is Term Life Insurance?
Term life insurance is a highly affordable kind of life insurance, but it expires after a set amount of time (like a contract). Term plans generally cover large amounts of debt and are used for income replacement purposes up until retirement age.
What Is Whole Life Insurance?
Whole life insurance is exactly what you’d expect from the name: it’s life insurance that covers you for your entire life. These policies will pay out no matter when you pass away once you’ve set up a policy.
As we age, it becomes more and more difficult to maintain good health and naturally people are more at risk for greater health issues. As such, whole life insurance policies are better to set up when people are younger so that they’re more affordable.
What Is Critical Illness Insurance?
What Is Critical Illness Insurance?Critical illness insurance is a one-time, tax-free payout 30 days following the diagnosis of a critical illness with roughly 75% of claims being cancer-related.
It’s also up to you as to how you’d like to use the benefit. For example, the money could be used toward recovery by helping fund specialized treatments and medications not covered by government programs. It also could be used to fund family travel expenses or allow a family member to take significant time away from work to stay with the person who’s sick.
What Is a Policyholder in Life Insurance?
The policyholder is the person who actually owns the life insurance policy. They’re responsible for making payments and determining the details of the policy. They also have complete control over making any changes to the policy even if they’re not the person who’s insured.
The only time the policyholder is not in complete control is if their agreement is dictated by an employment contract.
What Are Life Insurance Premiums?
Finally, one of the most important terms to know regarding life insurance is “premiums.” This word is used to describe the payments you make to your insurance company for the life insurance they provide.
- In term life insurance, premiums cover the cost of administration and your life insurance coverage.
- In whole life insurance, the premiums fund both of those aspects, but they also fund the cash value amount as well.
Overall, if you’re ever unsure about any terms in your life insurance policy and need clarity, talk to your life insurance provider as they can best break down what each one means and how it relates to your policy.