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Getting insurance is easy, but going through the words in your contract can be daunting. Don’t let insurance jargon get in the way of protecting yourself and your loved ones. Check out these commonly used insurance terms, and learn what they mean.
by Nathan Arciaga, 12 August 2017
Documents intimidate many of us, especially anything as official and legally binding as an insurance policy. More often than not, we just trust our agents to fill us in on all the important details of our plan, and if we’re not satisfied with the explanation, we just don’t purchase it at all. It’s a shame, really, as this means that sometimes the only thing standing between you and securing your future is a bunch of insurance legalese.
So expand your vocabulary and learn these five commonly used insurance terms.
This is basically the total amount of money you pay to the insurance company to get you covered. This amount varies based on a number of factors like your age, your gender, pre-existing medical conditions, and sometimes even the nature of your job. This can be paid in lump sum or broken down in yearly, semi-annual, and quarterly payments. Most providers cancel your coverage automatically once you stop paying the premium, so make sure you always pay on time or within the grace period.
For all intents and purposes, you may refer to annuities as a sort of retirement fund. It is a chunk of money you set aside with the help of your insurance provider so you can have a steady source of income later on in life. Annuities work when you have a sizable amount that you feel you can live without for now, that it can be stashed away for a long time and it won’t impact your current financial setup. The amount of money you get in the future may vary depending on the type of plan you get (fixed or variable) and the prevailing interest rate.
Some insurance plans offer dividends—yearly payments taken out of the insurance company’s profits and paid out to policyholders. This is kind of a little extra income that you get for purchasing the plan. But dividends aren’t set in stone, there may be years when the insurance company will declare minimal profits or none at all. Still, if your plan offers dividends it could greatly help in taking care of your premium, or you could even invest it in other insurance or investment products.
In getting life insurance, you either get one that covers you for your entire life, or for a fixed period. When it’s fixed, there is a certain date when your policy stops covering you and pays you a lump sum amount stipulated in the contract. Sometimes, even whole life policies have maturity dates that normally coincide with your 100th, or 120th birthday. Should you reach that age, you’d get whatever it is your next of kin would have gotten had something bad happened to you.
This is the amount of money you or your beneficiary will receive in the event of your death or policy maturity. It’s a baseline though, as the amount could be more, depending on the cause of death (e.g., accidental) and other provisions on your contract, or if you’re supposed to get additional remuneration like in the form of dividends. It is usually found on the very first or top page of your policy, hence the name “face” amount.
* Please note though that these definitions and explanations are generic and are based on common industry understanding. Your policy may specifically set its own definition of some of these terms.