Life insurance is not a topic learned at schools for most people, so it’s understandable that many Filipinos across all professions and backgrounds have little to no understanding on the terms used in a life insurance contract.
So when a friend or colleague invites you to talk about life insurance, it’s easy to get confused during the conversation. It pays to learn about the most commonly used life insurance terms so you’re ready.
Here are 16 terms you’ll encounter split into categories and decoded into plain English:
The People in a Life Insurance Policy
1. Policyholder or Policy Owner
The person who owns the insurance policy. This is usually the person who pays the premiums and has the right to make changes to the contract (like changing who gets the money).
2. Policy Insured or Insured
The person whose life is covered by the policy. While the policyholder and the insured are often the same person, they don’t have to be (for example, a wife might own a policy on her husband or children).
3. Beneficiary
The person, people, or entity (like a trust) designated to receive the money if the insured person passes away.
The Financial Aspects of a Life Insurance Policy
4. Premiums
The “subscription fee” for your insurance. This is the amount you pay (monthly, quarterly, semi-annually or annually) to keep the policy active. If you stop paying this, the policy usually lapses.
5. Death Benefit
The total amount of money the insurance company pays out to your beneficiaries upon your death. In most cases, this money is passed on tax-free.
6. Face Amount
The amount of coverage you originally purchased. While often the same as the death benefit, it can change over time depending on the type of policy or if you’ve taken out loans against it.
7. Cash Value
Found only in traditional life insurance policies (like whole life), this is the savings component of your policy that builds up over time. You can often borrow against it or withdraw it, though doing so might reduce your death benefit.
Types of Life Insurance Policy
8. Traditional Term Life Insurance
Insurance that covers you for a specific period (e.g., 1, 5 10, 20, or 30 years). If the term ends and you are still living, the coverage simply stops. It’s usually the most affordable option.
9. Traditional Whole Life Insurance
An umbrella term for policies that do not expire as long as premiums are paid. They provide a death benefit and often include a cash value component.
10. Variable Universal Life Insurance
Also known as the variable unit-linked, the VUL is a type of life insurance that comes with unit-linked investments. Part of the premiums being paid goes to the life insurance cost, the other part goes to a pool of funds chosen upon purchase of the policy.
The Fine Print of a Life Insurance Policy
11. Rider
Think of this as an “add-on” or an upgrade to your base policy. Common riders include Accidental Death (pays extra if you die in an accident), Waiver of Premium (pays your bill if you become disabled), and Critical Illness (provides lump sum in case of a dread disease diagnosis).
12. Underwriting
The process the insurance company uses to decide how “risky” you are, or the evaluation phase. They’ll look at your age, health, occupation, and lifestyle to determine your premium price.
13. Contestability Period
A window (usually the first two years of a policy) during which the insurance company can investigate a claim to ensure there wasn’t any fraud or misrepresentation on the original application.
14. Suicide Clause
A standard provision stating that the death benefit won’t be paid if the insured person commits suicide within a specific period (usually the first two years) after the policy starts.
15. Lapse
What happens when you stop paying your premiums and the grace period ends. The policy is no longer in effect, and the insurance company is no longer obligated to pay a death benefit.
16. Grace Period
The “extra time” you have to pay your premium after the due date before the policy officially cancels. It’s usually 30 or 31 days.
These terms are the things you need to know about a life insurance plan. What other terms are you looking for or wishing to learn about? Comment down below or ask a trusted insurance consultant below:
Disclaimer: This article/content is AI-assisted for clarity and coherence.
