Understanding Life Insurance

They say taxes and death are the only absolute things in life. Whether this is true or not, you can prepare for both. While tax planning is an interesting subject, we are going to look at life insurance in this article.

Life insurance is a fairly simple concept, but it can appear complex to the average person. The complexity comes from the terms used. If you can understand the language, you can make a better determination of what you need. So, let’s talk terms!

An Adjustable Life Insurance Policy is a popular product. As the name suggests, one can adjust the premiums, term, death benefit and time when premiums are paid. Such flexibility lets you coordinate the policy to your current needs as they change.

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.

To really understand what you are getting into, you need to grasp the Cost of Insurance. This is the amount you pay in premiums minus what you get from the policy. It is a simple calculation with term insurance, but more complex for policies that build up cash.

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.

For many people, building up cash value in an insurance policy is a smart move. A Dividend Accumulation clause allows you to do just this, to wit, reinvest an dividend paid by the insurer back into the policy.

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.

The Variable Universal Life Insurance Policy is a more recent and popular product. Premiums and benefits are adjustable. Money is accumulated in the policy and can be invested. The flexibility makes the policy attractive.

As with any area of financial planning, there are a vast number of terms used in the life insurance world. If you don’t understand a term used by an agent, ask for an explanation. Don’t be shy!