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Life Insurance - Undestanding the Phrases Used

They say taxes and death are the only absolute things in life. Whether this is true or not, you can prepare for both. While tax planning is an interesting subject, we are going to look at life insurance in this article.

Life insurance is the great safety net against all that life can throw you. That being said, it is hard to imagine another area of financial planning that uses such odd terminology. Well, let's take some of the mystery out of the more common terms.

An Adjustable Life Insurance Policy is a popular product. As the name suggests, one can adjust the premiums, term, death benefit and time when premiums are paid. Such flexibility lets you coordinate the policy to your current needs as they change.

The Amount At Risk on a policy is something insurers pay close attention to. It is the difference between the face amount of a Whole Life Insurance policy and the cash value. The amount at risk is the difference, to wit, the figure the insurer will have to pay out.

An Automatic Premium Loan is something you need to check for in your policy. It allows the insurance company to make a premium payment from the cash value in your policy should you miss the payment.

The Commutation Rights associated with an insurance policy apply to the beneficiary of the policy. Depending on the policy, the beneficiary may elect to convert installment payments to a lump sum payment.

Many modern insurance policies contain a Contestable Clause. This gives the insurance company up to 2 years to void the policy if they find evidence that would have resulted in the rejection of the policy application when originally made.

The Right of Conversion refers to an individual's right to convert a policy held as part of a group into an individual policy if the person ceases to be part of the group.

The insurance phrase Double Benefit or Double Indemnity refers to a policy that pays out double the stated benefit if the person whose life it is based on passes away in a particular way, such as a car crash.

For many people, building up cash value in an insurance policy is a smart move. A Dividend Accumulation clause allows you to do just this, to wit, reinvest an dividend paid by the insurer back into the policy.

The most common type of life insurance is Term Insurance. Term policies vary in design, but you basically pay a premium for a death benefit. There is no cash build up in the policy. The policy has a capped term of five, ten or more years.

Variable Contracts represent another pillar of the life insurance industry. These policies come in the form of annuities or straight life insurance. Cash builds up in the policy and may be invested in stocks or mutual funds and so on.

Many people make the mistake of assuming their agent will suggest the best policy. Agents will try, but how intimately do they know you? Make sure you take an active role in the selection process to avoid getting stuck with something you don't want.