- OWNER(s) – the person(s) or entity who owns the contract and is responsible for paying the premiums. The owner is also the one who designates the beneficiaries.
- INSURED – the person whose life is being insured. The death benefit is triggered upon the demise of the insured, not the demise of the owner.
- BENEFICIARY(IES) – the person(s) or entity to whom the death benefit is paid after the insurance carrier receives proof of the insured’s death. There are two main classifications for beneficiaries: Primary and Secondary (sometimes called “Contingent”) beneficiaries. The Primary beneficiary(ies) will receive the death benefit in the percentage designated. However, if the primary beneficiary has predeceased or dies simultaneously with the insured, then the death benefit will be paid to the Secondary / Contingent beneficiary(ies).
- Policy – A contract between the Owner and the Insurance Company.
- Premium – The money paid to the insurance company by the owner to keep a policy in-force.
- In-force – A status that indicates that the contract is enforceable or “active”.
- Death Benefit – the amount of money that is paid by the Insurance company to the Beneficiary upon the death of the Insured.
- Face Amount – the amount of insurance money that is being purchased for the life of the insured. Often, the Face Amount and the Death Benefit are one-and-the-same value. However, sometimes the Death Benefit may be more or less than the Face Amount depending on several factors. Here is one simple example where the Death Benefit is not equal to the Face Amount: Let’s say that the Face Amount is $100,000, but the owner of the policy takes a loan from the policy of $10,000 and before the loan is paid back the insured dies. In this case, the Death Benefit will be $90,000 instead of the Face amount because of the outstanding loan value. This is not likely to happen on a Term policy, but could apply in other situations.
- Term – Term is the duration of time that one’s premium amount is constant. If I buy a 5-year Term policy, my premiums will not change for the first 5 years of the policy. A 30-year Term policy means one’s premiums will remain the same for 30 years. Don’t mix it up. The Term is not how long the policy is in-force, nor is it the length of time for which you are obligated to pay premiums. It simply specifies that the insurance company cannot raise premiums on that contract during that Term.