5 key terms to know about life insurance

admin — Sat, 01 Dec 2012 18:55:01 +0000

Before you purchase life insurance, make sure to understand these five terms that will pop up in your policy. Consider this example as we go through the terms. Sam is a 35-year-old working father. He has a wife and three children.

1. Premium

As is the case with most insurance policies, you will need to pay a certain amount of money each month. This out-of-pocket payment is what you spend each month to maintain the policy. Depending on your life insurance policy, the premium payment could be locked in at a certain amount, or it could change as you change your policy.

2. Face Value

The face value of your life insurance plan is the amount of money the insurance company owes your family when you die. This is also called the death benefit of your insurance policy.

3. Insured

Insurance companies may use terminology such as "the death benefit of the insured is $55,000."� The "insured" is referring to the person that the policy is for. For example, if Sam purchased life insurance to help his wife and children if he died unexpectedly, he would be considered the insured. Not his wife nor children.

4. Policy Owner

In most situations, the policy owner is also the insured in a life insurance policy. If Sam's employer was providing the life insurance, his employer would be considered the policy owner instead of Sam.

5. Beneficiary

If the insured does indeed pass away during the terms of the life insurance policy, the insurance company would pay death benefits to the beneficiaries. In our example with Sam, his wife and children would be considered the beneficiaries of the insurance policy.

Citation: BYU Marriott School of Management Personal Finance A principles-based approach, 5th edition, Bryan L. Sudweeks Ph.D. CFA

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What are my life insurance options?

admin — Sat, 01 Dec 2012 18:54:44 +0000

Picture this: You are the provider for your family. Your wife is a stay-at-home mom for your three children. On your way home from a business meeting, the driver side of your car is hit head-on and you die on impact. Your family is left mourning, trying to fund a funeral and figure out how to live on your wife's significantly smaller salary at the job she found after your death.

This is where life insurance comes in. It is a way for you to continue to provide for your family if anything should happen to you. Any financial losses won't be on the shoulders of your family, but on your insurance company. Make sure you know which type of life insurance will best fit your lifestyle.

There are 2 main types of insurance from which to choose: Term Life Insurance and Permanent Life Insurance.

Term Insurance

Term insurance is only good for a specified period of time (or term) i.e. 30 years. If you die during that time period, your family will be covered. If not, the insurance does not apply. When it comes to price, term life insurance will be the cheapest option since you are only paying premiums for a set period of time as opposed to your whole life. Typically the older you get, the more costly the plan will be. Some plans are renewable, meaning you could keep the same premiums and costs that you had when you started the insurance, For example, if you purchased the plan at age 25, you can renew the same plan at age 55 (after the 30-year term has finished).

Permanent Insurance

Permanent Insurance is just that: permanent. You would pay for insurance your whole life. Your insurance would never be cancelled. In addition to acting as your life insurance, permanent insurance can be used as a form of estate and retirement savings. Permanent insurance is more expensive because the insurance provided is much more extensive. Many term insurance plans are actually convertible, meaning that it can be converted to a permanent life insurance plan.

As you decide which type of life insurance to purchase, be sure to evaluate your priorities and preferences, the amount of life insurance you will need, how much of a premium you can pay each month, and how long you will need life insurance.

For example, some families may choose to only have life insurance when they have children living at home because living expenses are much higher with children than with two individuals.