Understanding Our Life

Those who do buy life insurance don’t necessarily comprehend what they’ve purchased.  46% of respondents acknowledged that they didn’t completely understand their policies. If that’s the case, they may not have bought the proper coverage.


“The only way you’re going to know if it’s the right product is if you understand it.


Here are some must-know terms.


Policy owner: The person who buys and controls the insurance policy. The policy owner may or may not be the one whose life is insured. For example, a wife could own a policy on her husband. The policy owner is the only one who can change the beneficiary and get policy details from the insurer.


Premium: The amount of money you pay for insurance, generally quoted per month or per year.


Beneficiary: The person who receives the life insurance payout. You can name more than one beneficiary, and you can designate a specific percentage for each beneficiary. For example: 70% to Tong Chin and 30% to Tong Hua.


Death benefit: The life insurance money that is paid to the beneficiary.


Insured person: The person whose life is being insured.


Term life insurance: This type of policy lasts for a specific number of years. You select the term, such as five, 10, 20 or 30 years.


Permanent life insurance: This type of policy lasts for your entire life and also has a cash value component. There are multiple varieties of permanent life, including whole life, universal life, variable life and variable universal life. If you decide to buy permanent life insurance, work with a financial advisor and be sure you understand the difference between permanent and term life before you buy.


Cash value: If you buy permanent life insurance, part of your payment goes into a “cash value” account that grows in value over time. You can take a loan against the cash value and use the money for anything you like.


Accelerated death benefit: This policy feature allows you to receive some of the life insurance payout early if you are terminally ill. Some insurers now call this a “living benefit.” It’s usually a free feature, so make sure your policy has it.


Rider: An add-on that provides an additional feature or coverage at extra cost. For example, with a “waiver of premium” rider you don’t have to pay for your life insurance if you become totally disabled and can’t work. “Imagine a life insurance policy is like buying a car, and a rider like all the accessories the dealer offers you. Do you need it? It’s up to you to decide.


Underwriting: This is the process by which insurance companies evaluate the risk of insuring you and determine your life insurance rate. It often includes accessing your medical records, driving record and prescription drug history.