Chapter 3 – All the pieces of the puzzle.
You are now at the point where you know some differences between life and mortgage insurance. You now also know the steps involved with getting life insurance, but who are the people involved in this process? What do they do? Here is some key terminology that you need to know.
This is the person who is responsible for the sales part of the process. I use sales loosely because if the agent is doing his or her job they should be doing more educating than selling to the client. The agent is responsible for getting estimates, giving information, and is also your direct link to the insurance company. The agent is your go to person for insurance and can advise you for a lifetime.
The Insurance Company provides the life insurance product. They assess risks and find suitable methods of covering those risks.
The underwriter reviews all the information collected from the medical questionnaire, agent questionnaire, paramedical nurse, and the doctor, if necessary. They use past statistical data and rates to help determine what your rate will be.
These companies are the ones that fill out the medical questionnaire on behalf of the life insurance companies. They are quick and professional, helping accommodate your needs. They keep your information and results confidential.
The person or persons receiving the death benefit. It may be an individual, multiple people, charity, or business. The options are almost endless.
The death benefit is the amount of money the insurance company has agreed to pay the beneficiary when you die. No matter what type of life insurance you have, the benefits are handled the same way. If you agree to $300,000 in coverage, that is what your beneficiary receives. The benefit is also received 100% tax free. What you agree to is exactly what they get.
The premium is the amount of money you pay to the insurance company in return for your insurance. The amount you will have to pay monthly or annually will depend on the type of policy you have and the risk factors determined in your application process. Some risk factors the insurance company takes into consideration include your age, overall health, and gender. For example, young people have less risk of dying, so they pay lower premiums. This is why it is a good idea to apply for life insurance while you are young.
“Cash Value” is the reserve that builds up inside certain life insurance policies over time. Specific kinds of life insurance products are designed for financial planning as well as life insurance. During the early years of the policy, the actual cost of the insurance is low but the premium is high; the cost differential is held in reserve in your life insurance policy. In this kind of life insurance product the cost of insurance increases over time and the cash reserve can then be used for investing as part of a broader financial plan or to decrease the premiums.
An insurance policy is simply a contract. Both parties have obligations to fulfill to receive the promised benefits. The key thing to be aware of, as mentioned earlier, is that this is a unilateral contract. After the papers have been signed and the payments made, only you have the right to change or cancel the policy.