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Understanding Life Insurance
They say taxes and death are the only absolute things in life. Whether this is true or not, you can prepare for both. While tax planning is an interesting subject, we are going to look at life insurance in this article.
Life insurance is the great safety net against all that life can throw you. That being said, it is hard to imagine another area of financial planning that uses such odd terminology. Well, lets take some of the mystery out of the more common terms.
References to Adjustable Premiums should be examined closely in any policy. This allows the insurance company to change the premiums on a block of policies during the term of the contract.
The Amount At Risk on a policy is something insurers pay close attention to. It is the difference between the face amount of a Whole Life Insurance policy and the cash value. The amount at risk is the difference, to wit, the figure the insurer will have to pay out.
When you buy an insurance policy, you will be asked to designate a Beneficiary. This is the person that you want to receive the funds that will be paid out from the policy on the death of the life insured.
The Commutation Rights associated with an insurance policy apply to the beneficiary of the policy. Depending on the policy, the beneficiary may elect to convert installment payments to a lump sum payment.
Many modern insurance policies contain a Contestable Clause. This gives the insurance company up to 2 years to void the policy if they find evidence that would have resulted in the rejection of the policy application when originally made.
The Right of Conversion refers to an individuals right to convert a policy held as part of a group into an individual policy if the person ceases to be part of the group.
There are life insurance polices designed for business obligations. A Credit Life Insurance is taken out on a business owner and used as collateral for some debt. The beneficiary is the creditor providing the loan to the business owner. If the owner dies, the benefits are used to pay off the debt.
A Waiver of Premium clause is something you should try to include in your policy. The waiver essentially says that if you become disabled, no further premium payments must be made. Coverage, however, continues.
The most common type of life insurance is Term Insurance. Term policies vary in design, but you basically pay a premium for a death benefit. There is no cash build up in the policy. The policy has a capped term of five, ten or more years.
A Variable Life Insurance Policy is used both as a financial safety net and investment vehicle. The policy builds up cash value that can be invested. Depending on the policy, the premiums and death benefit will change as the cash value grows.
As with any area of financial planning, there are a vast number of terms used in the life insurance world. If you dont understand a term used by an agent, ask for an explanation. Dont be shy!
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Next:Overview And History Of Life Insurance
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