Life insurance is something most people know they need, but the terminology can sometimes be very confusing to people. It’s actually not complicated at all, and to help you, we’ve put together some basics for you.
A life insurance policy is a contract between you and an insurance company.
In that contract, you agree to make payments (premiums) to the insurance company for a specified period of time (sometimes for the duration of your life), and the insurance company agrees to provide a lump-sum cash payout (“death benefit”) in the event that you pass away within the duration of the policy. The contract is legally binding and government-regulated.
When you buy a life insurance policy, you pay the insurer and name beneficiaries who would typically receive a tax-free payout (death benefit) if you were to pass away while the policy is active.
In its simplest state, every life insurance policy is made of these four components:
Policyholder – The person who owns the life insurance policy and is paying the premiums. Typically, this is the person who applied for and is insured under the policy, but it’s also possible to purchase a policy on behalf of someone else.
Beneficiary – The person(s) or entity, people, business entity, or institution(s) that receive the death benefit if the policyholder dies. You can name one person (or more) as beneficiaries when you purchase a policy.
Premium – The money paid monthly or annually to keep a policy active (or “in-force”) during the term. Payment ensures that the insurance company will provide your beneficiaries with the stated benefit in the event of your passing. If you stop paying premiums, the policy lapses.
Death benefit – The money paid out if the insured person passes away. Death benefits are not subject to an income tax and beneficiaries generally receive the benefit in one lump-sum payment.
Life insurance is money that goes to your loved ones so they are not burdened when you pass away. If you have further questions about the basics of life insurance, contact Senior Life today at 877.777.8808