The simple Definitions of Life Insurance Terms
Face Value:
The face value is the amount constructional obligated by an insurance
policy to pay the named beneficiary in the event of the policyholders
death.
Cash Value:
Life insurance policies such as Whole Life and Universal Life policies
have an investment value built into each policy. With each Premium
payment a portion of that paid amount is invested into a financial
vehicle. The value of the investment total is considered the cash value.
Policy Loans:
Whole Life insurance policies allow policyholders to borrow money
from their own built up cash value. When you borrow from the policy,
you are charged interest. If you are still paying onto the policy via
premiums, then your premium will be higher, because you are also paying
the interest on your loan, until it is paid back.
Cash Surrender Value:
The cash surrender value is the amount you would receive, from
any built up Cash value in a whole life policy, minus any policy loans
and interest.
Decreasing Term Insurance:
As the name indicates decreasing term insurance is a term life
insurance that reduces the amount of payoff over a period of time.
Decreasing Term Insurance is usually used for longer-term loans or
mortgages which the value of payout decrease as the “debt” decreases
of time. Basically you are insuring or covering the full amount due
on a loan or debt. If you were to pass away before the debt was settled
or paid off, the decreasing term insurance would pay of the balance
of that debt.
Premiums:
Premiums are the amount of money due to keep the contact of a life
insurance enforce. The premium is what you pay each month, quarter,
or year.
Contestability Period:
Almost all insurance policies have a contestability period. This
time period is usually 2 years. In the event that someone passes away
while still in the contestability period, they may not get the face
value of the policy, but rather a return of all premiums paid. The
contestability period is in essence a probationary time frame to make
sure that a terminally ill individual doesn’t reap a windfall
for his beneficiaries, with their inside information of their terminal
condition.
Life Insurance as an Investment?
Many insurance salesmen think of Life insurance as an Investment. But is it really? Life insurance and investments are two totally different entities. Lets
first explore the benefits of a life insurance policy.
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When to use Term Life insurance in your investment portfolio
Term life insurance is a must in any financial portfolio. Don’t
mix up Whole life insurance with term life insurance; they are
two separate and different types of life insurance policies. Whole life
has its benefits but not as an investment.
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