Insurance is a term we often encounter, especially with the government’s increasing emphasis on it. However, the question remains: how well do we truly understand it? Let’s take a deep dive into the realm of insurance and explore some basic terminology, particularly for those new to insurance or considering a policy.
Insurance serves as a contract between you (the policyholder) and an insurance company. In this agreement, the insurance company promises to provide you with a sum of money if a specific event occurs, such as a car accident, fire, or illness. To secure this protection, you pay a premium to the insurance company.
When discussing insurance, it’s important to note that there are various types and today, we’ll focus on life insurance.
Life insurance, a specific type of insurance, comes into play when the insured person passes away. In this case, a death benefit is paid out to the beneficiaries designated by the insured person. This benefit can be utilized for various purposes, such as covering funeral expenses, settling debts, or offering financial support to the insured person’s loved ones.
Types of Life Insurance:
- Term Life Insurance
Sarah, a 35-year-old, purchased a 20-year term life insurance policy to secure her family’s financial future in case something happened to her. Fortunately, she stayed healthy and lived beyond the policy term, so her beneficiaries didn’t receive a payout. However, Sarah had peace of mind during those crucial years.
- Permanent Life Insurance
On the other hand, her friend John chose permanent life insurance at the same age. He paid premiums throughout his life and, when he passed away at 80, his beneficiaries received the death benefit. John’s policy had also built up cash value, which he could have used for various financial needs, like his children’s education or supplementing his retirement income.
In summary, Sarah went for term life insurance for a specific period, while John opted for permanent life insurance to provide lifelong coverage and the benefit of cash value accumulation. The choice depends on individual circumstances and financial goals.
Here are a few lesser-known terms from the world of life insurance:
- Nominee: The nominee is like the person who receives the prize money if you can’t make it to the event. They’re the ones you trust to get the insurance payout.
- Lapsed Policy: If you don’t pay the premium (ticket price) on time, it’s like missing the payment for your ticket. The policy (entry to the event) can get cancelled.
- Grace Period: This is like getting a little extra time to buy your event ticket if you missed the deadline.
- Death Benefit: If something unfortunate happens to the life assured, this is the prize money that goes to the nominee, like a beneficiary.
- Free-Look Period: Imagine you buy the ticket but later change your mind about going to the event. During the free-look period, you can return the ticket and get a refund.
- Revival Period: If you missed buying your ticket, but still want to go to the event, you can reactivate it during the revival period.
- Rider: Think of riders as add-ons to your event ticket. You can enhance your ticket with extra benefits, like VIP access or special privileges.
Know: 5 Key Metrics for Life Insurance Companies
Conclusion
life insurance is a valuable tool for safeguarding your family’s future and planning for financial security. If you’re contemplating a life insurance policy, diligent research and comparisons of policies from various providers are essential before making your selection.
