• Call (817) 545-3900 to find the best insurance coverage

  • Underwriting, premiums, contestability period—terms like these can make insurance words seem like a foreign language. Fortunately, a good insurance professional can help you make sense of it all. So can the definitions below. Read on to understand some commonly misunderstood insurance words taken from the article 16 Commonly Misunderstood Insurance Words by Amanda Austin.

    Commonly Misunderstood Insurance Words:

    Permanent life insurance: Permanent life insurance pays a death benefit just like term life insurance. But unlike term life insurance, permanent life insurance provides lifelong protection for as long as you pay the premiums. It also accumulates cash value on a tax-deferred basis. You can use this money to buy a home, supplement your retirement income, cover an emergency expense and more. It’s a great option if you’re looking to build your wealth while also protecting your family financially.

    Term life insurance: Term life insurance is the most common and affordable type of life insurance. It provides coverage for a specific amount of time (the term). The term is usually 10, 20 or 30 years. Your beneficiaries receive a payout (known as a death benefit) if you pass away during the term.

    Premium: A premium is the payment an insurance company requires in order to keep your policy in force. Depending on the policy, you might pay your premium annually, quarterly, monthly or some other frequency.

    Death benefit: The death benefit is the amount of money your beneficiaries receive from the life insurance policy. You typically don’t have to pay taxes on the death benefit.

    Accelerated death benefit:  An accelerated death benefit, often as a rider (see below) to a policy, lets you use some of the life insurance death benefit before you die. This is an option if you’re terminally ill. People often use the accelerated death benefit to pay off debt, cover hospice costs or take a special trip with their families.

    Rider: A rider is an additional amount of coverage you can add to your main insurance policy. It gives you extra coverage for your exact needs. Common insurance riders are long-term care riders and accelerated death benefit riders.

    Contestability period: A contestability period is a set amount of time after a life insurance company issues your policy. During this time, the company can review your application to make sure you didn’t misrepresent anything. The contestability period starts as soon as the policy is issued. It usually lasts one to two years. Its purpose is to protect the life insurance company from fraud.

    Conversion right: Some term life insurance policies let you convert them into permanent life insurance policies later on. This is a great way to keep your coverage and build wealth. (Learn more about permanent life insurance below.)

    Insurable interest: Life insurance policies require you to have an insurable interest in the person named in the policy. This means that you would suffer some kind of financial harm if that person were to die.

    Underwriting: Underwriting is the process an insurance company uses to decide two things: if they want to offer you a policy and at what rate. A professional called an underwriter does the underwriting. When it comes to life insurance, the underwriter looks at factors like a person’s age, health, lifestyle and more to make those decisions.

    If we can be of any assistance, please give us a call at 817.545.3900 or www.reynoldjones.com