A life insurance policy can be quite difficult to understand. Even though most policies attempt to make the varying parts easy to read, frankly, they’re still written in insurance, a language only understood by insurance reps and attorneys. However, if you know just a few of the key definitions and the location of important information in your policy, you’ll have a good grasp of the product that you own.
The first page of a policy contains much of the policy information. The policy number is on the page, the premium amount, the age of the insured when the policy was issued, the date of issue and the face amount of the policy. The first page also tells the type of policy. While some of the names of policies may not give you a clue whether they’re term or permanent plans, such as “the Cover Special Insurance Plan,” others include words like universal, indicating a universal insurance plan or term life, indicating a term plan.
Some people don’t understand the difference between term insurance and permanent insurance. Term insurance is pure insurance coverage. While some plans offer a feature that gives you back your premium at the end of the policy term, the policies cost more for this feature and if you put away the additional amount in a savings, you might fare better.
Permanent plans can be variable, traditional or universal. All of them cost more than term but all have an aspect of savings and either a level premium or a modified level premium. Variable universal life policies use sub accounts that resemble mutual funds for the savings aspect. Universal life policies and traditional whole life policies accumulate interest. However, the traditional whole life has guarantees in the policy and can never run short on funds if interest rates or investment rates are low.
If you can’t remember whom you named as a beneficiary but know you didn’t change it, look toward the back of the insurance policy. There’s normally a copy of the application near the last few pages of the policy. Everything you requested the night you took out the policy is on the application, including the beneficiary.
You can change your beneficiary any time you want. When you initially name the beneficiary, they must have an insurable interest. However, once the policy is in force, they no longer have to have an insurable interest or be a relative. If you want to change the beneficiary to the cat, you can once the insurance company issues the policy.
There are primary beneficiaries, secondary and tertiary ones. If the primary beneficiary dies, the money automatically goes to the secondary beneficiary and if they predecease you, then to the tertiary. You can name several people beneficiaries and divide the money by percentages. You can also make the designation per stripes or per capita. If one person of your group of beneficiaries dies, a per stripes designation passes the funds to their heirs. If you have a per capita designation, their share is divided among the remaining beneficiaries.
