Life insurance is the great safety net against all that life can throw you. That being said, it is hard to imagine another area of financial planning that uses such odd terminology. Well, let's take some of the mystery out of the more common terms.
The Accumulated Value is a phrase used in a Universal Life Insurance Policy to describe the total premiums paid and interest credited to the policy before deductions for any expenses, loans or surrender charges.
An Assignment refers to the transfer of the ownership of an insurance policy from one person to another person. The actual document required to do this is also called the same thing.
An Automatic Premium Loan is something you need to check for in your policy. It allows the insurance company to make a premium payment from the cash value in your policy should you miss the payment.
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.
An Adult Provision, often referred to as a Control Provision, appears in life insurance policies for a minor. The clause designates an adult to handle all elements of the policy until the minor reaches a specified age.
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.
A Decreasing Term Policy is a creative product. As time passes, the death benefit decreases until it zeros out. This is often used to match the repayment of a large debt such as a mortgage. As the mortgage is paid off, there is less need for an insurance policy.
A Waiver of Premium clause is something you should try to include in your policy. The waiver essentially says that if you become disabled, no further premium payments must be made. Coverage, however, continues.
A Universal Life Insurance Policy is another pillar of the insurance industry. It is an adjustable policy with a flexible premium. You can choose what you can afford to pay at a given time and a corresponding death benefit is generated. This can be adjusted from time to time.
Variable Contracts represent another pillar of the life insurance industry. These policies come in the form of annuities or straight life insurance. Cash builds up in the policy and may be invested in stocks or mutual funds and so on.
Many people make the mistake of assuming their agent will suggest the best policy. Agents will try, but how intimately do they know you? Make sure you take an active role in the selection process to avoid getting stuck with something you don't want.
