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Understanding of insurance terms aids decision process

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When it comes to life insurance, a lot of terms are thrown around that may require a little explanation for the insurance buyer.

The following is a glossary of life insurance terms provided by the Springfield Association of Life Underwriters.

Accidental Death Benefit. A feature of a life insurance policy providing an additional benefit if the insured dies in an accident. Because the face amount of the policy is often doubled under this provision, it is also called double indemnity.

Beneficiary. The person named in the policy to receive the insurance proceeds at the death of the insured. A secondary or contingent beneficiary will receive the proceeds if the primary beneficiary cannot collect.

Cash Surrender Value. The amount payable if a life insurance policy is canceled by the insured before it either matures or is payable on death. Cash value is the same amount that may be borrowed by the policyholder while the policy remains in force.

Endowment. Life insurance payable to the beneficiary if the policyholder dies before a specified date, or to the policyholder if he or she is living on that date.

Face Amount. The amount stated on the policy that will be paid at death or maturity. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the use of policy dividends.

Free-Look Period. Time during which the policyholder may return the policy if he or she is not completely satisfied and receive a complete refund. The customary length of time for a "free look" is 30 days for policies purchased through the mail and 10 days for those purchased from an agent.

Grace Period. A period of time after a premium due date, usually 30 or 31 days, during which an insurance policy remains in force, and the overdue premium may be paid without penalty.

Guaranteed Renewable. A policy which is renewable at the policyholder's choice and cannot be terminated by the insurance company.

Long-Term Care Insurance. Insurance designed to cover a range of services for people who are chronically ill or infirm, though not necessarily confined to a long-term care facility like a nursing home.

Medicaid. An assistance program for needy and low-income people, administered by individual states under federal law.

Medicare. A national insurance program designed and run by the federal government for the elderly and disabled.

Participating Policy. A life insurance policy under which the company distributes surplus funds to policyholders as dividends. These dividends serve to reduce the premiums or to increase the amount of insurance.

Nonparticipating Policy. By contrast to participating polices, this type has a fixed premium, which is often lower and does not pay dividends.

Permanent Life Insurance. Type of life insurance (other than term insurance) which accrues cash value and is designed for long-term or permanent needs of a policyholder. Includes universal and variable life, among others.

Rider. A special policy provision that may be added to a policy, expanding or limiting the benefits that are otherwise payable.

Settlement Options. The ways in which policyholders or beneficiaries may choose to have benefits paid other than a lump sum.

Term Insurance. Life insurance written for a specific time period and payable only if the policyholder dies within that time period.

Renewable Term. May be renewed at the end of the period, at the option of the policyholder, at an increased premium based on the policyholder's age. Term insurance is best suited for short-term needs.

Universal Life Insurance. A flexible life insurance policy under which the policyholder may change the death benefit from time to time and vary the amount or time of the premium payment.

Variable Life Insurance. Life insurance under which the benefits vary, but usually never below a guaranteed minimum benefit, based on the value of assets behind the contract at the time the benefit is paid.

(The preceding information was provided by the Springfield Association of Life Underwriters.)

INSET CAPTION:

The customary length of time for a 'free look' period is 30 days for policies purchased through the mail and 10 days for those purchased from an agent.[[In-content Ad]]

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