We understand that shopping for life insurance can be an overwhelming process, especially when you’re not fluent in life insurance lingo.
To help you have a better grasp of the language used during the process, we’ll define the most common terminology that you’ll encounter from start to finish.
Parties Involved in the Life Insurance Buying Process
Policyowner: The person who has control over a life insurance policy. The policyowner can also be the same person as the payor, insured, or beneficiary.
Beneficiary: A person or entity that receives a payout when/if the insured dies.
Secondary beneficiary: A backup person or entity you name to receive the policy’s death benefit if the primary beneficiary cannot. Also known as a contingent beneficiary.
Life insurance broker: A life insurance broker like Quotacy, represents clients during the life insurance buying process. They run quotes from various insurance companies and present them to you, then help you apply.
Insurance company: The insurance company is responsible for financially managing the shared pool of life insurance money available for pay out if the insured dies. Also known as:
- Life insurance carrier
Life Insurance Policy Breakdown
Life insurance policy: A contract between a policyowner and the life insurance company. The policyowner agrees to pay a premium keeping the policy inforce (active) and the insurance company agrees to then pay proceeds to the beneficiary upon the death of the person insured by the policy.
Premium: The premium is the amount of money required by the insurance company to be paid by the policyowner to keep a policy inforce (active).
Term life insurance: Term insurance is a pre-determined amount of life insurance coverage for a specific length of time, which can also include riders. A death benefit is paid if the insured dies within the period of time.
Coverage amount: The coverage amount is the dollar amount an individual is insured for. The insurance company pays this amount to the policy’s beneficiary when/if the insured dies. Also known as:
- Death benefit
- Face amount
- Payout amount
Length of coverage: The length of coverage is the period of time an insured individual has life insurance coverage. Also known as:
- A term
- Term length
- Term period
Rider: A rider is an optional add-on that you can include on your life insurance policy that provides extra benefits. Common rider options: child rider (coverage on your minor child) and term conversion rider (ability to convert to a permanent policy).
Determining the Price:
Many factors are involved when determining the price of a life insurance policy. The applicant is underwritten, and their risk classification is determined. How risky they are to insure affects their life insurance rate (premium).
Risk classification: A category a life insurance company assigns an applicant based on their health and lifestyle factors. These risk classes group people with similar risks together.
Underwriting: The process of evaluating a proposed insured’s risk factors based on a set of guidelines to determine the cost of his or her life insurance policy.
Hopefully this will help clarify the unknowns you bump into. If you run into any terms that need defining along the way, check out our full term life insurance glossary here.
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About the writer
Director of Creative Strategy
Greg is Quotacy’s Director of Creative Strategy. He has an eclectic past from working on movie scripts to creating ad campaigns for major brands. His love of creative solutions drove him to strategy, and he now uses his powers to help families protect their loved ones. Outside of work, Greg spends his time off the grid hunting, fishing, camping, biking, hiking, and walking his dogs.