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 Uncommon Definitions for Common Policies

Uncommon Definitions for Common Policies

Feeling pretty confused by all the life insurance jargon your friendly life insurance agent uses? (Me too!) 😉 I mean, what the heck is premium mode anyway? It’s always best to understand all the terms before you choose to buy a policy, so today I want to help you learn some of the more uncommon definitions that you will need to understand before buying a term life insurance policy. Ready? Let’s go!

Term Life Insurance Definitions:

  1. Proposed Insured –The individual who is applying for the term life insurance coverage (That would be you!)
  2. Beneficiary –The beneficiary of your term life insurance policy is the person designated by you to receive the policy benefits upon your death. You may designate one or multiple beneficiaries or even a charity, and it can be changed at any time.
  3. Date of Birth — Maybe this isn’t an uncommon definition, but it’s good to know why agencies need it! Age is an important factor in the insurance industry. The premiums you will be charged for term life insurance coverage are based in large part on the age of the proposed insured (again, that’s YOU!)
  4. Attained Age — Some insurance companies use the proposed insured’s attained age when determining the age for term life premium calculations. This method uses the proposed insured’s actual age in years. Unlike the nearest age method, months are not a consideration in attained age.
  5. Nearest Age — The nearest age method for determining age takes into account whether the proposed insured is nearer in age to their last birthday or their next birthday. For example, a woman who is 24 years and 5 months old would be classified as a 24-year old woman for the term life premium calculations. In contrast, a male who is 34 years and 9 months old would be classified as a 35-year-old man for the premium calculations.
  6. Premium and Premium Mode –The premium is the amount a term life insurance company charges you in exchange for a life insurance policy, while the premium mode is the frequency in which premiums are paid by the insured. Typically, the total annual premium is slightly higher when payments are spread out over the course of the year as opposed to being paid in a lump sum.
  7. Coverage Amount/Face Value — The coverage amount or face value is the initial dollar amount you choose as your term life insurance policy coverage. For example, if you buy a policy for $250,000.00, that is the coverage amount/face value that will be paid to your designated beneficiaries upon your death. The coverage amount/face value does not include adjustments for outstanding policy loans, withdrawals, dividends, paid-up additions, or late/outstanding premium payments.
  8. Underwriting Guidelines — Insurance companies use underwriting guidelines to determine the classification upon which to base their coverage. These guidelines include your health and lifestyle. All of these underwriting guidelines are taken into consideration when evaluating a proposed insured and before giving any term life insurance premium quotes.
  9. State of Residence — This is the state in which the insured or proposed insured resides. While it is self-explanatory, the important thing to consider here is that if you reside in a particular state, it may be beneficial for you to buy insurance specific for your state. For example, Californians are subject to different laws than people who reside in Texas. As a resident of California it might be more beneficial for you to buy a California term life insurance policy to cover a particular lifestyle or to reap particular benefits.

Understanding the basic definitions for a type of life insurance can make a huge difference when making a decision for you and your family. Still not sure if Term Life Insurance is the right next step for you? Schedule a call with me today so we can find the right fit for you!

Knowledge is power,