Life insurance terms to know: Getting to know your policy
Translating the jargon of life insurance
Even if you've had life insurance for years, you may be oblivious—or at least rusty—about some of the terms that pop up in relation to your policy. Unfortunately, you might have no idea what benefits your life insurance actually offers, and who plays what role in it.
If you think it's time for a review of your own policy, we've put together a handy glossary of terms you might find yourself facing:
- Actual cash value (ACV): The amount of money a life insurance policy pays out in the instance it ever comes to fruition or is cashed in early, taking into account any fees that might be paid or any interest that may have been earned. In many cases, “cash value” refers to policy money that is put into an investment account, and will therefore earn more value through the investments made.
- Beneficiary: The beneficiary is the person named on the policy who will receive the benefits if the insurance policy is put to use. In most cases, this is a family member, although it can be anyone.
- Death benefit (Face amount): The actual amount stated on a policy which will be paid in case of death or at the end of the policy. This does not include dividends, amounts payable in the case of accidental death, or acquired through other special provisions.
- Policy owner: The policy owner is, stated simply, the person who owns the policy. It is often, though not always, the same person who is actually insured. In some cases, the policy owner may be a relative or business partner of the insured.
- Settlement options: The ways in which the policyholder or beneficiary can choose to have the benefits of a policy paid. This can include:
- Interest income option: The life insurance company holds the death benefit and will pay a specified amount of interest on it, disbursed on a regular schedule. The beneficiary can get a portion or the entirety of the proceeds whenever they need them.
- Fixed amount option: The death benefit and its interest will be given out in a fixed amount over time, until the death benefit and its interest have been fully paid to the beneficiary.
- Fixed period option: The death benefit and its interest will be given out over a certain amount of determined time, in equal payments.
- Life income option:The death benefit and interest are paid out over the course of a beneficiary's life, no matter how long it may be. The amount is determined based on the total amount of the death benefit, in addition to the calculated life expectancy of the beneficiary.
Life insurance is a powerful tool. Acquainting yourself with these terms can help you become not just a policy holder, but a family hero.