Kathryn B. Hauer, CERTIFIED FINANCIAL PLANNER (TM)
Hi! Francisco’s advice and definitions are great. I’m a big fan of doing research at safe, government-sponsored websites that are not trying to sell you anything. A website at USA.gov offers this brief overview of life insurance:
"A life insurance policy is a contract between you and an insurance company. The contract states that you will pay premiums over time, and, in exchange, the company will pay a lump sum amount upon your death to a designated beneficiary. The proceeds from your life insurance policy can help pay bills and help support your surviving family members' living expenses.
There are two main types of life insurance policies:
- Whole (or universal) life insurance policies are considered permanent. As long as you pay the premium, the policy is in effect. In addition to paying a benefit upon your death, whole life insurance policies also have an investment or savings component. This means that you accumulate cash value over the life of the policy, so you can borrow money from these types of policies if you need to.
- Term life insurance policies are in effect for a certain period of time, or term. If you have this type of policy and pass away during the term that the policy is in effect, then the insurance company will pay a benefit. If you live past the time that the policy is in effect, the insurance company won’t pay a benefit or give you a refund.
Term life insurance policies are usually less expensive than whole life insurance policies. This is because term life insurance policies only cover a set amount of time, while whole life insurance policies are intended to be permanent and because part of the money you pay is put away for savings."
Life insurance is primarily regulated by each state rather than the federal government. The state you live in has an insurance commission where you can safely learn more about life insurance – I live in South Carolina and my insurance commission offers safe info here. Your state will have a similar site. Best wishes to you and thanks for writing!
There are several terms you should acquaint yourself with before selecting and purchasing your life insurance policy.
You'll want to learn about the types of insurance: term life insurance and whole life insurance.
Also, review the definitions of the following life insurance terms: application, insured, owner, beneficiary, payment, insurer, financial rating, claim, premium, death benefit, rider, term, coverage amount, renewable, and conversion privilege.
Here is a glossary of life insurance terms to help you learn about terms used in life insurance policies.
Francisco Ramirez, President, Insuringmyself.com LLC
You'll want to be able to differentiate between different life insurance types. The main ones: Term Life, Universal Life, and Whole Life. Premium is going to refer to the cost of the policy and Death Benefit is going to tell you how much is being paid out in the event of death. Modal is a word you'll see to describe how frequently you are required to make payments. Lapse is a bad word - means that your policy is cancelling (typically for non-payment or insufficient premium payments). Cash Value - you'll see that with Universal and Whole Life policies, it's simply the liquidating value of the policy should you decide to cancel it at that specific time.
Learn more with this life insurance buyer's guide: https://www.insuringmyself.com/files/Life-Insurance-Buyers-Guide-NAIC.pdf
Did we answer your question?