Buying life insurance can seem confusing if you don't know the terms that are used within the industry. Understanding the jargon involved will not only make the process of finding this type of insurance easier, but will also help you to find the best deal for your needs. Here are some of the most common life insurance terms explained:
Term life insurance
Term life is the most common form of life insurance. The policy is taken out over a specific time length, with premiums paid out each over this period. If you die within this period then a lump sum is paid out. If you come to the end of the term and you are still alive then your cover stops. This type of insurance is popular because although it doesn't guarantee payout it is relatively cheap.
Whole life
Whole life does exactly as it says by insuring you until you die. Premiums are paid until you die, at which time a lump sum is paid out. This type of insurance guarantees a payout, but it does cost a lot more money than term life.
Life insurance vs. life assurance
Many people get confused when they hear the terms life insurance and life assurance mentioned, and want to know the difference between them. Simply put, there is no difference. Life and life assurance are two terms for the same thing. If you are offered a life assurance policy this is basically life under another name.
Qualifying policy
The term qualifying policy refers to life insurance that pays out a tax-free sum. If you see this term used or offered it means that when you die your policy will pay out a lump sum that your family will not have to pay tax on. This obviously depends on the payout amount and eligibility, but if you can get a qualifying policy you should do so.
Estate
When people here the term estate they might think you mean an actual property or estate. However, in this type of insurance the term simply refers to the total assets that an individual has. This can be worked out by subtracting any debts from the value of savings and property. When you die your estate is how much you leave behind in monetary value.
Churning
If you are in the process of churning, this means you are surrendering one insurance policy and then taking out another one. If possible you should try and avoid this because it will mean that you lose money, as any money you have already paid to one policy will have been wasted and you will need to start all over again.
Waiver of premium
Some policies offer a clause that means if you can no longer pay your premiums then they will be covered for you for a length of time. This means that should you fall ill or into financial difficulty your cover will remain and you won't lose out all the money you put into the policy. Although this feature can be useful it is likely to mean your premiums will be higher. Make sure that you only sign up for clauses that you really need. This will allow you to find the best policy for your needs.
Choosing between term and universal life insurance plans can be confusing. Only with some research and planning can a responsible choice be made.
Do You Even Need Life Insurance?
Before deciding between term and universal coverage, consumers need to determine whether or not life insurance is actually needed.
When you come right down to it, it's a matter of money -- if death would cause a financial burden for the family, then life insurance is critical. Financial matters to be considered include funeral costs, college tuition, and all outstanding and upcoming debts. For single people without children or dependents, life insurance is really optional.
Once you've made the decision to buy life insurance, then it's time to determine which kind of policy is right. This is when you need a reputable insurance agent, referred to you by someone you trust. The agent can help you deal with the details of the various benefits and costs of multiple policy types.
Term Life
Term life insurance policies are among the most flexible and economical types of life insurance coverage available. These policies are designed for those who want basic coverage for a set time period without a savings account built in. This means that there will be no return on the money paid into the policy over the years.
Premium rates for a term life policy vary with the policy. Policies are usually purchased for 10, 15, 20, 25 or 30-year periods, and they may be renewable. Apart from low rates, the variety of term periods is one of the most appealing features.
For instance, a couple with a child entering college who want to ensure that tuition will be paid for in the event of their death, can purchase a term life policy for just those years. There is no reason to purchase a lifetime policy for a short-term need. Term policies with increasing or decreasing coverage are also available.
A disadvantage of term life policies is the inconsistency of their rates. While premium rates start out very low, they usually rise as policyholders age. Also, policyholders who want to renew after the initial term has ended, may find the renewal fees prohibitive.
Universal Life Insurance
Universal life insurance policies will pay any necessary death benefits, but also provide policyholders with an additional tax-deferred savings account advantage. Generally these policies must be held for a minimum of 15 years before resulting in any return from the savings account. They provide policyholders with a stable long-term investment that can be borrowed against or cashed out.
The premium rates and coverage provided by universal life policies remain constant throughout the years. Premium rates tend to be higher than with other policies, largely due to agent commissions, but under some plans the rates drop as the policyholder ages and may even disappear altogether. Unless the policy lapses, there are no renewal fees to contend with.
While some financial experts argue that there are better investment options available for educated consumers, many recognize universal life policies as having sound investment benefits.
Both Peter Kenny & Ron King are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Peter Kenny has sinced written about articles on various topics from Credit Cards, Finances and Best Money Market. Peter Kenny is a writer for creditcards-gb.co.uk.For additional articles and an extensive resource for everything about credit cards, please visit us at