Could you come up with a term life insurance definition?
The world of life insurance has its own dictionary and sifting through the jargon can feel overwhelming. That’s why we are here to spell out for you in a way you understand.
First, let’s start by saying that term life insurance is a type of life insurance policy that provides coverage for a set period of time at a fixed payment rate. The policy’s term is guaranteed as long as you continue to pay your premiums. Term life insurance is a smart option when you need coverage for a certain number of years but can’t afford a whole life policy.
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Now, you can dive in a bit more. When applying for term life insurance, you’re likely to come across the following terms.
Term Life Insurance Definition
(Could also be called Duration of Coverage, Length of Coverage, Policy Term)
Term is a guaranteed length of time.
When referring to life insurance, your term is the length of time your policy will stay in force as long as you continue making the premium payments. At the end of the term, you can either extend, renew, or convert your coverage, depending on your policy.
(Could also be called Face Amount, Policy Value, Payout Amount, Face, Proceeds)
The death benefit is the amount of money those you designate as beneficiaries will receive when you die. You select how much coverage (the death benefit) you want your policy to provide.
(Could also be called Payment, Cost, Price)
Premium is the amount of money you will have to pay for your insurance policy. Premiums can be paid in multiple frequencies such as monthly, quarterly, semi-annually, or annually.
Beneficiary is the word used for the entity or person that will receive the payout of your face amount if you died.
A beneficiary can be one person, like a spouse or child, or multiple people, given different percentages of the face amount until 100 percent of the death benefit is accounted for. A beneficiary can also be an organization or a charity that would receive the money from your life insurance policy when you die.
(Could also be called Secondary Beneficiary, Other Beneficiary)
Contingent beneficiary is the second person or entity you name to receive your life insurance payout when you die if the primary beneficiary cannot.
Insurable interest is required when buying life insurance on another person.
This situation exists when one individual can prove that the death of another individual would affect the person financially.
For example, spouses typically rely on one another’s income. One spouse has an insurable interest on the other spouse. Your neighbor does not depend on your income, therefore, he or she does not have an insurable interest and could not purchase life insurance on you.