Understanding Life Insurance Terms
Navigating the world of life insurance can be daunting, especially with the array of terms and jargon used by providers. Understanding these terms is crucial in choosing the right policy that fits your needs. This guide will break down some of the key life insurance terms you’ll encounter, making it easier for you to make informed decisions.
1. Premium
The premium is the amount you pay to the insurance company regularly—monthly, quarterly, or annually—to keep your life insurance policy active. Premiums can vary based on factors such as age, health, lifestyle, and the type of coverage you choose. Understanding your premium helps you manage your budget while ensuring adequate coverage.
2. Sum Insured (or Cover Amount)
The sum insured is the amount of money the policy owner will receive if you pass away while your life insurance policy is active. This amount is agreed upon when you take out the policy and can range from tens of thousands to millions of dollars, depending on your needs and circumstances.
3. Policy Owner
A policy owner has three key responsibilities:
Keeping the policy in force by paying the premiums;
Making decisions about any changes to the policy and/or cancellation of cover;
Deciding who any claim payments are to be made to.
What we recommend for Life Insurance is that the policy is not owned by the life assured so that if there is a claim, the money can be paid to the remaining policy owner quickly without delays.
4. Underwriting
Underwriting is the process the insurance company uses to assess your risk level before issuing a policy. This process typically involves evaluating your health, lifestyle, occupation, and medical history. The outcome of underwriting influences your premium and whether any exclusions or special conditions will apply to your policy.
5. Exclusions
Exclusions are specific conditions or circumstances under which the insurance company will not pay out a claim. Common exclusions include death resulting from suicide within the first 13 months of the policy, death due to participation in hazardous activities (unless disclosed and covered), or pre-existing medical conditions not declared at the time of application.
6. Claim
A claim is the formal request made by the remaining policy owner to the insurance company for the payout after your death. The insurer will review the claim and, if approved, release the funds according to the terms of the policy. It's important to ensure your beneficiaries know how to make a claim and have access to the necessary documents.
Conclusion
Understanding these life insurance terms is essential for making informed decisions about your coverage. By familiarizing yourself with these concepts, you can better assess your options, choose the right policy, and ensure that your loved ones are adequately protected. Life insurance is a critical part of financial planning, and with this knowledge, you're better equipped to secure your family's future.
Glen Hatcher
Financial Adviser
New Vision Financial Services
Plan your future and let us help you have peace of mind along the way.