Help! What Do All of These Terms Mean?
Ultimately, life insurance is a pretty straightforward product. It helps to protect your family from the potential financial consequences of your death. That said, sometimes the lingo in the buying process can be dizzying. Ahead, we cover the key terms that apply to term policies. For specific information on Next Term Life† insurance features, terms and conditions, please see our FAQs.
The person(s) or entity (a trust, for example) that receives the life insurance death benefit when the insured dies. You designate your beneficiaries when you purchase the policy and can add to or change those designations throughout the life of the policy (unless you make the beneficiaries irrevocable, though this is rare). For instance, an unmarried person may name their parents as beneficiaries. If they marry, they can change the beneficiary in their policy to their spouse if they would like.
Sometimes referred to as the coverage amount, it's the amount paid to the beneficiaries upon proof of your death. On cash value policies, any loans and interest (if not paid back) and withdrawals will result in a lower death benefit and may lead to tax consequences.
The amount of coverage purchased. It’s called the face amount because in the past it was usually stated on the first, or “face,” page of the insurance policy.
The person whose life is covered by the life insurance policy. The insured may also be (but is not necessarily) the policyowner.
Sometimes called a policyholder, the policyowner is the person who applies for and owns the life insurance policy. They can conduct transactions for the policy, such as changing beneficiaries and taking cash withdrawals, where available. Policies will have a policyowner, an insured, and a beneficiary. It is common for the policyowner and insured to be the same person, but they aren't always. For example, a woman who takes out a policy on her own life would be the policyowner and the insured. A policyowner may also buy a policy that covers someone else’s life (a parent, spouse, or child, for example), who is the insured. Only the policyowner can make changes or other decisions about the policy unless someone is legally authorized to act for them (such as the attorney-in-fact named in a power of attorney).
A life insurance requirement, insurable interest means that the person buying the policy would experience economic loss if the insured dies. The death benefit payout from the life insurance policy is intended to help offset that financial hardship. For Next Term Life insurance, the owner and the insured are the same person so insurable interest is automatically met.
The payment you make to keep the policy active. Depending on the terms of the policy and the schedule offered by the insurer, premiums may be due— monthly, quarterly, semi-annually, or yearly—or unscheduled (you make them when you choose, so long as they are sufficient to keep the policy active).
An additional feature that can be added to a policy to provide additional benefits, usually for an increase in the premium. There are numerous types of riders available today to meet different needs. One example would be a rider that can provide payment of some or all of the death benefit to you while you're living should you become disabled or develop a serious illness. Another example is a rider that waives the premium in specified situations where you cannot make your payment. Rider options vary based on the product, or the insurance company, or even the state of issue.