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.
A classic sketch of a conversation with a life insurance agent would show the person trying to buy a policy with their eyes glazed over. Why? The terminology being used is confusing. Well, let’s change that by discussing some or the common terms used.
References to Adjustable Premiums should be examined closely in any policy. This allows the insurance company to change the premiums on a block of policies during the term of the contract.
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.
The Cash Surrender Value of a policy is often misunderstood. It refers to the amount due a person who terminates a policy holding a vested cash reserve in it. There is often an arbitrary charge deducted by the insurer as well.
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years to void the policy if they find evidence that would have resulted in the rejection of the policy application when originally made.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 Whole Life Insurance Policy is one of the staples of the life insurance industry. The policy provides a death benefit, but also accumulates cash within as premiums are paid in over time. There are many different ways to pay the premiums, so make sure to ask.
The Variable Universal Life Insurance Policy is a more recent and popular product. Premiums and benefits are adjustable. Money is accumulated in the policy and can be invested. The flexibility makes the policy attractive.
The important thing to understand about life insurance is that polices differ greatly. This means you must understand exactly how a policy being pitched to you works. If terms are used that you don’t understand, ask for clarification!
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