Life insurance terms defined

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If you’re in the market for life insurance, having a solid grasp of some of the terminology used can be extremely helpful.

And while giving every definition for every term or phrase would be very lengthy (and pretty boring), here are some of the more common ones you may encounter while you’re shopping.

Life insurance commonly used terms

Beneficiary

This is the person you choose to receive your life insurance money after you pass away. For many policies, you can name more than one beneficiary. If you don’t name a beneficiary, your death benefits go to your estate.

Cash Value

This is the amount of money you would receive if you cancel your policy or if your policy lapses.

Estate

This is a general term for the total assets and liabilities a person has when they die.

Face Amount

It’s the amount of money your beneficiary/beneficiaries will receive when you pass away. If your policy has a graded death benefit, this may reduce your benefits during that period. The face amount is also called a death benefit.

Free Look

This is a time frame new policyowners can review their policy and terminate their policy without penalty. Regulations surrounding these vary by state.

Grace Period

This is extra time allowed after the premium is due before coverage lapses. Regulations on these vary by state.

Graded Death Benefit

This a period of time where death benefits may be reduced. The length of time and the benefits paid out vary.

Issue Age

These are the ages a company will allow someone to purchase a policy. For example, many marketing pieces will state “Issue ages: 18-80.” Regulations surrounding these vary by state.

Issue Date

This is the date a company approves and accepts your application.

Lapse

This is what happens if you don’t pay your premiums. That is, your policy is no longer active and you’ll no longer be eligible to receive benefits.

Maturity Date

The date your policy expires. For term policies, this is the end of the term (10 or 20 years, for example). For permanent policies, these are set by age — for example, age 100. When your policy reaches maturity date, you are paid your full face amount.

Premium

The amount you pay (monthly, quarterly or yearly) to cover your policy.

Rider

Extra benefits that can be added to your policy. Some may be free; some may come with a cost.

Underwriting

This is a process applicants go through for some policies. These could include questionnaires or medical exams.

By being familiar with the key terminology of life insurance, you can better understand the policies you’re considering. In turn, that means you’re better prepared to make the right decision for you and your family.