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Not sure where to start when it comes to shopping for life insurance? During your search for the perfect policy, you’ll likely experience a bit of information overload. While it’s important to understand exactly how your policy works, we believe in making life insurance as simple as possible.
We’ve rounded up six common terms that will help you get a better understanding of how life insurance works.
While this term might seem complex, the underwriting process refers to the evaluation of the applicant’s health, medical history, lifestyle and occupation to determine eligibility for coverage. Depending on the type of policy you choose, underwriting could be instant or take a few weeks for processing.
Most term life insurance policies offer simplified underwriting, while more complex policies such as whole life insurance may require a more detailed look at your medical history or a medical exam.
The beneficiary of your life insurance policy is the person(s) who will receive the payout of your policy when you pass away. You can choose more than one beneficiary (so long as the sum of the distribution of funds adds up to 100%) and you can also name secondary and tertiary beneficiaries.
Your beneficiary will receive a lump sum death benefit if you pass away while your policy is in force (meaning that you paid your premiums to the insurance company on time each month or year). If you have a term life insurance policy, this means that your beneficiary will only receive the death benefit if you pass away during the time you are covered (most people choose a term of 10-30 years).
An insurance carrier is the company that provides your insurance coverage. This term is interchangeable with insurer, insurance company or insurance provider. You pay monthly or annual premiums to a life insurance carrier when you apply for life insurance and can contact them if you have any issues with your policy.
While you can buy a policy through an insurance broker (like Quility), you purchase a policy through an insurance carrier and make payments to them directly.
However, your insurance agent is a lifelong resource if you have any questions about your policy. Your agent can also provide a free policy review to ensure your coverage needs are always met.
The death benefit is the untaxed lump sum the insurance carrier pays to your beneficiary if you pass away while your policy is in force.
The death benefit amount is the “face value” of your policy: for example, if you took out a $100,000 life insurance policy, this is the amount your beneficiary would receive upon your passing.
A rider is a policy-add on that provides additional benefits. Living benefit riders allow you to access policy benefits while you’re alive. One example is the return of premium rider that would provide a full refund of policy premiums if your term life policy went unused at the end of the term.
You can also add riders that would cover costs related to a work injury or disability, or cover medical costs related to a critical illness diagnosis.
Riders can help safeguard your income, cover long-term care costs or provide a refund of paid premiums if you never end up using your policy.
Certain types of life insurance include a cash value savings component within the policy. Each month, a part of your premium payment goes into a savings account within your policy. This cash value grows tax-deferred over the years.
After your policy has been in force for a certain period (surrender periods vary by carrier), you can access the cash value within your policy. The only catch with cash value is that withdrawing funds can affect the amount of the death benefit.
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