Life insurance is one of the best purchases that you will ever make for your family. Understanding all the terms and benefits of a plan can be extremely confusing but it’s important that you understand all the basic components of a life insurance contract to ensure that you’ve purchased the best plan to meet your needs.
When looking to buy life insurance, there are several key terms you’ll need to know. In the most basic way, life insurance consists of a policyholder paying a premium to an insurance company and in return, the insurance company paying out a death benefit to the beneficiaries of the insured if and when the insured passes away.
Death Benefit or “Face Amount”
The death benefit on a life insurance policy is defined as the amount that is payable to the beneficiary when an insured person passes away. Most life insurance policies pay out in one lump sum.
The term death benefit is oftentimes used interchangeably with the term “face amount” or “policy proceeds.” Therefore, if the individual purchases a life insurance policy with a face amount of $200,000 then the death benefit or face amount is $200,000.
Permanent life insurance offers cash value, which allows you to get more value out of your plan than you would with a policy that only pays out the death benefit. You can use the cash value during the life of the policy either as a withdrawal or as a loan that you will have to pay back.
The cash value component is not available in every kind of life insurance plan. This is only a part of the permanent types of coverage. If your plan is a whole life insurance policy with cash value, you should expect to pay more for the added advantage of the cash value.
In addition to the financial components of life insurance policy, there are other entities that also play a role. These are the policy owner, the insured, the insurance company, and the policy beneficiary.
The owner of a life insurance policy is the person that has the rights that are stipulated in the actual life insurance policy contract. These rights include the right to receive policy dividends (if applicable), the right to name a beneficiary, the right to surrender the policy for its cash value (if applicable), and even the right to transfer ownership of the policy.
The insured is who the actual policy is effective upon. Likewise, the insurance company is the entity upon which the responsibility of paying benefits will fall if a qualifying event occurs while the policy is in force. Do know that you can be the insured and the owner, the two however do not have to be the same person.
The beneficiary is the person or entity that is named in the policy who has the right to receive the death benefit proceeds if the insured should pass away while the policy is in force. Beneficiaries do not always have to be people, as they could also be a trust, an estate, or a business entity.
Naming the beneficiary is one of the most important decisions that you’ll make for your life insurance application. It’s the way that you will ensure that the correct person gets the life insurance plan. After you’ve bought your plan, be sure to update the beneficiary if there is any significant changes in your family.
Life insurance is the best investment to make sure your family is provided for after your time on Earth is over. Other investments or accounts could always be accessed or drop in value, but the policy you will soon buy holds its protection over time. Because you never what life is going to throw at you, it’s time to get the application started!
Cosmo Insurance makes the life insurance process easy and simple. Give us a call to get a free quote.
Cosmo Insurance Agency is an independent insurance agency serving surrounding communities in New Jersey. Cosmo keeps its promise to assure an efficient and creative approach to the services we offer. Each of our clients experience a personalized and long-term relationship with us. Our New Jersey based team of health brokers guides our clients in helping them choose the most cost-effective options. By incorporating the latest in technology-based tools and laws on healthcare, employee benefits, life insurance and finance, we keep our clients up-to-date with the plans that encompass all of their needs, whether it is individual or group insurance.
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