Because generations of attorneys have been involved in guiding the Renters Insurance industry, a large number of technical terms have been introduced. These words make something quite simple appear more complicated. Here is a quick guide to the standard jargon.
What is a policy?
This is the contract between you and the insurance company. It is slightly nonstandard because the usual contract is only enforceable by the parties who sign up, whereas this gives enforceable rights to your beneficiaries.
What is a term policy?
You have the choice of insuring your life for a fixed period of time called the “term” or you can buy a permanent or universal policy which pays out whenever you die. A term policy is like a bet. If you die during the term, your beneficiaries receive the benefit. If you outlive the term, the contract ends and nothing is paid out when you die.
What is a renewable term?
This is a policy for a fixed period of time that gives you the right to renew for a further term.
What is a convertible term?
The usual policy ends when time expires but some term policies give you the option of converting them into permanent or universal policies.
What is the premium rate?
This is the regular payment you must make unless the insurer agrees to waive the payment(s). If you fail to make a number of payments without consent, this gives the insurer the right to cancel the policy. This means you will lose everything paid and nothing will be paid out when you die.
Who are the beneficiaries?
This is the individual or group of people who will take the benefit of the policy when you die. You can choose the beneficiaries by making a will or the money will pass to those entitled under your state’s intestacy law.
What is the death benefit?
This is the amount your beneficiaries will receive when you die. It can be a fixed amount or a guaranteed minimum with additional cash value added by investment over the years.
What is cash value?
Term insurance usually only pays a fixed amount, but permanent or universal policies have a cash value. The money you pay as the premium is invested for you and grows into an additional lump sum. This is added to the death benefit when you die. Alternatively, you can borrow this money, or surrender the policy during your lifetime and recover some of this value.