Your clients may know that they should have life insurance — but that's about it. When it comes to basic terms and definitions around how life insurance works, their understanding may be limited, and that confusion can cause them to ignore life insurance altogether.
You want to make sure your clients understand the basics of life insurance. After all, it is an important part of their families' financial future.
Help educate your clients by sharing the below life insurance glossary. This glossary is something you can use to provide clear information about basic life insurance terms and definitions.
Life insurance glossary
Beneficiary
A beneficiary is who the death benefit will go to after you pass (as long as you have continued to pay your life insurance premiums on time over the life of the policy). A beneficiary can include one or multiple people, as well as a charity, trust or organization, among other options.
Irrevocable
The term "irrevocable" is used to describe a beneficiary with a vested interest in a life insurance policy's death benefit. You generally can't make changes to an irrevocable beneficiary designation without the consent of the beneficiary.
Lapsed
When premium payments are missed beyond the applicable grace period, the policy is said to be lapsed. When a policy is lapsed, the policy is terminated and no death benefit will be payable.
Owner
The owner is the person who owns the life insurance policy and is the only one with authority to receive information about the policy or make changes to the policy. Owners are also known as policyholders.
Premium
The payments you make in order to keep your life insurance policy in force are called premiums. Depending on the terms of your policy when you purchase it, premiums can be scheduled monthly, quarterly, semi-annually or annually. One form of life insurance known as single premium life is funded with one lump sum at the time of purchase.
Rating
During the underwriting process, the life insurance company will give you a health classification rating. It's used to help determine premium payments. In general, the healthier and younger you are, the less risk you pose to the carrier which allows them to charge relatively less in premiums.
Replacement
A replacement policy is one that is used to replace all or a portion of a current plan.
Rider
A rider is a type of add-on for a life insurance policy. It often provides a specific benefit. Some of these benefits can be included in the basic policy, while others come at an additional cost.
Term
A term is the time period covered by a life insurance policy. It could be for as little as one year or as long as forty years in some cases.
Term life insurance
Term life insurance is a type of policy that covers a specific period, for example, 10, 15, 20, 25, 30 or 40 years.
Underwriting
This is the process an insurance company uses to determine if you qualify for insurance and what rate you will pay for your chosen policy.
Universal life insurance
Universal life insurance is a type of permanent life insurance policy that has a cash value component. It also offers flexibility in death benefits and premium payments.
Whole life insurance
Whole life insurance is another type of policy that provides permanent coverage for the remainder of your life. The policy is valid as long as you pay your required premium payments on time.
The importance of educating your clients
One of the most important things you can do as a financial professional is help educate your clients. Creating an environment where it's okay for them to ask questions is how you can build trust and develop a deeper relationship.
Highlight how life insurance is a key part of long-term financial planning and estate management. Also, help clients understand how life insurance needs are different depending on the stage of life they are in. For instance, seniors' life insurance needs differ from those who are in their twenties.
Once you have shared this life insurance glossary with your clients, be sure to follow up with them to have a more in-depth conversation. Then you can help them determine the type of policy that best fits their needs.
Have clients who are starting to think about life insurance for the first time? Take a look at this checklist specifically for first-time clients.
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