Purchasing a life insurance plan is one of the most significant decisions you’ll make in your lifetime. Sometimes, it becomes a little difficult to sift through the different companies to buy from, different plans each company offers, and confusing terminology. But first, you need to know about life insurance and its significance.
Definition of Life Insurance
Life insurance is a type of insurance that provides the insured or their family members with payment in unforeseen circumstances such as death, fatal illness, or total and permanent disability (TPI). There are two common types of life insurance policies: termed life insurance and whole life insurance.
Whatever type of life insurance it is, it can be an essential part of your financial planning. It’s good to go into the buying process with a little bit of knowledge, so below, we have listed out five basic life insurance terms everyone should know before making the big purchase.
A life insurance beneficiary can be described as a person or entity who receives money from the insurance company’s death policy upon the death of the person who purchased insurance. When you buy life insurance, you choose the beneficiary of the insurance. Your recipient can, for example, be a child or a spouse. In other words, a beneficiary generally refers to a person who is entitled to receive distributions from a life insurance company or trust, etc. The recipients are named explicitly in these documents or have fulfilled the eligibility requirements for a particular distribution. The holder of a life insurance policy can change the beneficiary at any time, although this usually requires that the necessary paperwork be completed with the life insurance company.
According to insurance.com, the policyholder can also be the insured person. A man can, for example, take out life insurance to protect his wife and children in the case of untimely death. In this case, the man is the policyholder and the insured. Or an insured can also be the beneficiary. The same man could purchase life insurance for his wife and claim an heir to protect his family’s financial well-being in case of death. In this case, the husband is the policyholder, and his children and wife are insured. In many cases, persons other than the policyholder get covered by the insurance. It includes examples such as the relatives with whom you share your house.
3. Life Assured
The term “life assured” refers to the person whose life is insured. People buy the life insurance plan to cover the risk of their untimely death for someone whose better life they plan to insure. A family’s breadwinner is commonly the life assured.
4. Policy Tenure
The term “Policy Tenure” refers to the period when the policy provides life insurance to the life assured. The policy tenure can be any time ranging from 1 year to whole life, depending on the types of life insurance plan you choose and its terms and conditions. This term decides the period for which the life assured person gets covered from risks, but in whole life insurance, the company covers the stakes until the life assured person is alive.
A life insurance premium refers to the amount of money that you pay as your portion of the cost of an insurance policy. Usually, a life insurance premium can be monthly, quarterly, semi-annually, or annually. In other words, the premium is the amount that you need to pay to the insurance company to keep your insurance plan active. The premium policy gets terminated if you fail to pay the premium within the due date or even during the grace period.