16 Commonly Misunderstood Insurance Words
Accelerated death benefit:
An accelerated death benefit, often as a rider to a policy, allows you to use some of the life insurance death benefit before you die. This is an option if you’re terminally ill. People often use the accelerated death benefit to pay off debt, cover hospice costs, or take a special trip with their families.
Annuity:
These are financial instruments that some insurance companies offer that allow you to save money on a tax-favored basis and create an income for life. Annuities are popular among retired people because they can offer protected income for life.
Contestability period:
A contestability period is a set amount of time after a life insurance company issues your policy. Its purpose is to protect the life insurance company from fraud.
Conversion right:
Some term life insurance policies let you convert them into permanent life insurance policies later on, which is a great way to keep your coverage and build wealth.
Death benefit:
The death benefit is the amount of money your beneficiaries receive from the life insurance policy. You typically don’t have to pay taxes on the death benefit.
Disability:
Disability insurance covers more than just injury or illness, so make sure to read your policy carefully to understand what it covers.
Grace period:
Some insurance policies may offer a grace period, which is the amount of time your policy remains in force if you don’t pay your premium before the due date.
Insurable interest:
Life insurance policies require you to have an insurable interest in the person named in the policy, meaning you would suffer financial harm if that person were to die.
Living benefits:
Some life insurance policies provide benefits while you’re still alive, such as accelerated death benefits, long-term care benefits, and policy loans.
Long-term care insurance:
Long-term care insurance covers costs if you can no longer care for yourself for an extended period of time, offering various policy options.
Permanent life insurance:
Permanent life insurance provides lifelong protection as long as you pay the premiums and accumulates cash value on a tax-deferred basis.
Preferred rates:
Preferred rates are less expensive rates offered to applicants at a lower risk of dying based on factors like health history, smoking habits, gender, and lifestyle.
Premium:
A premium is the payment required to keep your insurance policy in force, which can be paid annually, quarterly, monthly, or in a different frequency.
Rider:
A rider is additional coverage added to your main insurance policy to give you extra coverage for your specific needs.
Term life insurance:
Term life insurance provides coverage for a specific term, usually 10, 20, or 30 years, with beneficiaries receiving a death benefit if you pass away during the term.
Underwriting:
Underwriting is the process an insurance company uses to decide if they want to offer you a policy and at what rate, based on factors like age, health, and lifestyle.
