Some endorsements are cosmetic and aim to increase the premium amount without adding serious value, while some (like the disabled endorsement) make a lot of sense. Exercise your judgment and wits while attaching jumpers, having put their costs into perspective.
In this article, let’s continue our quest to simplify 4 other complicated life insurance terminologies!
The “policy term” is the length of time the life of the insured person is covered. Once the term of the policy has ended, the risk of loss of life of the insured person is automatically transferred to the individual and the due maturity benefits are paid. The policy thus ends.
Premium payment term
Many policies have a premium payment term that is different from the term of the policy. For example, a policy may have a term of 20 years, but a premium payment term of 12 years. During the 8 years following the 12th payment, the insurance coverage or the death benefit remains intact even if no premium is payable. However, there are no free lunches in the world of life insurance – the annual premium amount will be higher for policies with shorter premium payment terms than their policy terms.
The “cash value” of your traditional policy is the amount of money you’ll get back if you change your mind along the way or need emergency funds. Keep in mind that most traditional plans have notoriously low cash values, meaning there’s a hefty price to pay for terminating your policy before its stipulated term. Cash values increase from year to year, but generally only begin to gain importance in the second half of the policy term. The cash value is clearly represented in the illustrations of benefits that your agent is mandated to provide to you; evaluate it carefully.
Riders are optional extra risk transfer features that you can add to your traditional plan; For a price, of course. Riders enhance classic policies by making them more comprehensive. For example, an “accidental death” benefit rider may result in a higher payout if the insured person dies in a car accident. A “Critical Illness” rider could allow you to convert part of the death benefit in the event of a diagnosis of a critical illness, and a “Partial or Total Disability” rider could entitle you to a disability benefit. Some endorsements are cosmetic and aim to increase the premium amount without adding serious value, while some (like the disabled endorsement) make a lot of sense. Exercise your judgment and wits while attaching jumpers, having put their costs into perspective.