Last updated on January 24th, 2023 at 09:00 am
Life insurance is an integral part of future financial planning for your family. However, there’s no doubt it can be confusing when you don’t know much about it.
Before you begin wondering about when you should take out life insurance, and what the cost of term life insurance is, it’s helpful to learn some of the terminology about it. Cost may be an important factor for you, but it isn’t the only thing that you should consider.
What is life insurance?
So first, we define what life insurance actually is including life insurance no medical exam. This is when an agreement is made between you and an insurance company. It is a contract that determines how much will be paid out to your selected beneficiaries upon your death. You, the insured, need to pay monthly premiums in order to keep up that policy.
Who needs life insurance?
Anyone that has assets or savings and needs to support dependents. Life insurance was invented to cover burial costs for widows and to make sure orphaned children had enough to survive. Now there are many different life insurance types available. It’s good to explore and get a feeling for which one might work best for your circumstances.
Generally, if you own property or are starting a family, then you should look into life insurance. If you have any dependents, then you may want to ensure that they are financially stable should anything happen to you.
So what terms should you learn when it comes to life insurance?
This is the person (or organization) that will receive the policy payout in the event of your passing.
Usually this is a spouse or family member, but you should list their name so there is no confusion.
Remember that they only become the beneficiary if the payout is successful.
This is the payout if the claim is successful. Sometimes this is referred to as the death benefit.
- Cash-in value
Some insurance companies offer life insurance policies that have a cash-in value. This means that if the policy is canceled early, the person who took out the insurance (the policy) receives the value of the cash deposited into it.
This is the submission made to receive the payout from the insurance company after the policyholder has passed away. It is made within the policy term.
- Cover amount
You need to decide how much cover to take out when you make your application. This should cover mortgage payments and any maintenance amounts that your family may need when you’re not around. It’s important to think about this amount carefully and see how much you can afford.
- Death in service benefit
This is part of a benefits package that you may have with an employer. It gives your beneficiary a lump sum if you die while you are working at that business. This is a tax-free amount. It is not something employees usually pay into, so it differs from life insurance in that way.
It does not affect your policy.
This refers to the assets and money left by someone who has died. When the executor (see below) is handling the legalities of the policy after you have died, they will often discuss the estate. This doesn’t have to refer to a house or houses, which confuses some.
There are exclusions listed in every life insurance policy and it’s important to know these before you sign up. These are things that are not covered in your policy, so even if your family made a claim, it would be denied.
One of the most common exclusions is if the death occurred by suicide.
You name a person or company who will be responsible for making sure your instructions are adhered to in your will. This person usually arranges your funeral, pays any unpaid bills and oversees the distribution of your assets to your beneficiaries.
- Guaranteed Life Insurance
If you are over 45, and under 85, you have the choice of guaranteed life insurance. You do not need to take a medical exam for this insurance, which differs from a lot of policies. There is a guaranteed pay out with this option, which puts a lot of people’s minds at ease.
This form of life insurance is costly – your premiums will be higher.
- Level Term Life Insurance
You choose a length of time the cover will last, and a monthly amount. For the course of this term, your premium will stay the same, as will the cover offered. However, if the term ends, you will have to choose another policy and it may be more expensive.
Level term life insurance has no cash-in value.
- Power of Attorney
You can nominate someone to make financial and legal decisions in your place if you are incapacitated in any way – such as through terminal illness. You complete a legal document that names this person so that they can legally take over your affairs and act in your best interests.
Choosing life insurance
Once you’ve grasped an understanding of the different terms, you will be better equipped to complete your application. It may seem daunting at first, but you can refer back to this article for help. Your insurance company will likely provide an accompanying letter with the application to aid with its completion too.