Professional Insurance Blog

Shopping for life insurance doesn’t have to be a painful process. Learning the basics can go a long way towards a pleasant experience. Often, people are confused with the basics of what term life insurance is because of the vocabulary used when explaining it. This article is a short guide explaining the basics of a term life insurance policy in simple terms.

First, a life insurance policy is a contract that pays a stated amount of money to one or more individuals chosen by the policyholder if the insured dies. This amount of money is called the death benefit. The people who receive the money are known as beneficiaries.

In general, there are two types of life insurance contracts: term and whole life (also known as permanent). Term Life Insurance is a policy that provides insurance coverage for a limited period of time, hence ‘term’. If the insured dies during this term while the policy is still active, the Insurance company (Insurer) pays an agreed upon amount of money, usually called the death benefit of the policy, to the beneficiary. However, the policy will no longer insure, or payout upon death, after the agreed upon term has expired. A whole life policy provides coverage for a lifetime.

Because term life insurance only provides coverage for a limited period of time and does not build cash value, it is generally more affordable. By this, I am referring to the life insurance premium(s).

An insurance policy is agreed upon by the policyholder and an Insurer. This policy provides an agreed upon amount of life insurance coverage for a fixed period of time. The policy covers the insured and is held by the policyholder.

So, why all of the confusing language when discussing insurance? This is simple. Life insurance, as well as other types of insurance, is relatively particular in concepts and application. In other words, we must use technical language and special terms to describe it in order to be concise and efficient; otherwise it takes much more time and effort to discuss. Often insurance professionals forget that most people are not familiar with the terms they use.

Here is a quick glossary of terms used in this article as well as a general definition as used in the insurance world.

Beneficiary: The individual designated to receive the proceeds of an insurance policy.

Premium(s): The amount that must be paid to the insurance company for the benefits provided under the contract. In other words, paying the premiums keeps the policy in force.

Death Benefit: The amount of money they insurer will pay upon death of the insured.

Insured: The person whose life is covered by the insurance contract.

Policyholder: The person who owns the insurance policy.

Article provided courtesy of ChoosingInsurance.org, Insurance information and Quotes you need for saving money.