11 Essential Life Insurance Terms You Need to Know

Whether it’s in a bank or at a booth in the mall, some insurance agents tend to use industry-specific jargon when selling their products that can sometimes sound intimidating. It creates confusion and decreases the chances of availing a policy—no one is confident enough to buy a product they don’t fully understand, after all.

Life insurance is an essential investment to secure you and your loved ones’ future. However, unless you’re already set on getting one, insurance advisors don’t usually have the opportunity or time to explain every term they throw out.

If you want to do a bit of self-study before committing, you came to the right place. You should understand what a policy entails before signing on the dotted line. Picking the right life insurance product is crucial, and you want to do thorough research before sealing the deal.

With that, here are terms you should know to ensure you and your advisor are on the same page.

Life insurance is a contract between you (the insured) and an insurance company, which guarantees payment to your beneficiaries when you pass away. It is bound by a policy or a contract. 

The policy is your insurance contract that shows information like your coverage period, premiums, and benefits.

For banks to sell life insurance products to their clients, they partner up with an insurance company. This makes it easier for payments or life insurance products that have cash out perks. The bank is not your insurance provider; instead, they are your insurance advisors.

You can check out this post to gain a deeper understanding of the concept of bancassurance.

These are the people whom the insurer specifies to receive the death benefit. It could be your spouse, children, parents, or siblings. Usually, these are the people who depend on you for financial support.

A claim is an official notification to the insurance company that the payout of the benefit is due. In other words, it’s a formal request to the insurance company, granting you coverage or compensation for a covered loss or policy event. Once the claim is validated, the payment is issued to you or a qualified party on your behalf.

➔     Read: 5 Things to Remember When Filing a Claim

A paid insurance claim is set to indemnify or secure a policyholder from financial loss. This works by paying a premium that you need to complete with the insurance company.

The life insurance contestability period is a short window wherein the insurance company can investigate and deny a claim if material misrepresentations are found in the application. It begins as soon as the policy takes effect and usually covers one to two years.

If you pass on within the contestability period, the insurance company can start looking into your policy as they try to find out if you gave the correct information on your life insurance application.

If the company finds out you lied, you can be denied the death benefit, even if the cause of death has nothing to do with the misrepresentation done on your application.

This is the actual amount paid out to the beneficiaries when you pass away. When it comes to life insurance policies, death benefits are not subject to income tax, and beneficiaries usually receive the benefit as a lump sum payment.

A beneficiary must submit both proofs of death and coverage of the deceased to qualify for the benefit. You can decide on the payment structure that the insurer will pay your beneficiary. It can be specified that the beneficiary receives half of the payment upon death and another half a year after, or other payment options instead of a lump sum.

An endowment policy is a type of life insurance that provides both a death and living benefit when you are alive at the end of your policy’s term. It is often marked as a savings plan so that you can be paid a lump sum on the maturity date or in the event of your death.

While an endowment policy doesn’t earn interest throughout its term, a benefit of that is the individual will not need a medical exam to qualify.

The maturity date is either the exact day when the policy expires upon the death of the insured or the end of the availed term insurance. How it works is different in each type of life insurance coverage.

• Term Life Insurance - If you are still alive at the end of the insurance period or maturity date, no payment will be made to you, and the policy will expire. But, if you pass on during the insurance period, the agreed benefit amount will be paid as a lump sum to the beneficiaries, then expire.
  
  
• Variable Universal Life Insurance - It can mature in two ways:
  
  
  1. When you pass away, the policy will mature and expire, and the benefits will be paid.
  2. If you become terminally ill, you are given the option to “cash in” the policy for a portion of the death benefit.
      
• Whole Life Insurance - This policy provides both death benefits and cash value. The difference is the two are linked and only payable if you pass on or outlive the maturity date. If you survive the maturity date, you will be paid a lump sum that may be lower than the death benefit.

A premium is how much you will pay the insurance company for the benefits stated in the policy. Once earned, it is income for the insurance company. However, it’s also a liability on the part of the insurer as you must provide coverage for claims being made against the policy. If you fail to pay the premium, this may result in the cancellation of the policy.

Once you sign up for an insurance policy, you will be charged with a premium. This is the amount you need to pay for the policy or the total cost of your insurance. You are presented several payment options, with some insurers allowing installment basis, while others are requiring full payment before the coverage starts.

This type of life insurance has limited coverage, ranging from five to 30 years. You can renew your policy after its maturity date, but it’ll cost higher. Having term life insurance also means that the death benefit will only be released if the insured dies within their term.

Variable Universal Life (VUL) insurance comes with investment, allowing the insured to have an option for financial growth during their lifetime. It’s a popular product because of its living and death benefits. This policy covers you for life, typically until your 100th to 125th birthday.

This type of life insurance covers you until you pass away. It is usually more expensive than other types of life insurance. This accumulates a cash value. If you want to cancel your lifetime policy for whatever reason, you can receive the accumulated cash value to use however you wish.

It’s better to do your homework before you commit to a life insurance policy. This ensures you’re getting what you need, and that it can support both short-term and long-term goals.

If you’re ready to explore different life insurance products, you can easily have a chat with any BPI AIA Bancassurance Sales Executive to further assist you with your policy needs. Secure your future with proper life insurance today.