Understanding Insurance Basics

Beneficiary or beneficiaries

The person(s) named on the life insurance policy who will receive the death benefit when you die. For example, you may want to name your spouse or child as the beneficiary of your life insurance policy.

Beneficiaries may be revocable or irrevocable.

If the beneficiary is revocable, the policy owner can change the beneficiary at any time without advising the beneficiary.

If the beneficiary is irrevocable, the policy owner must have the irrevocable beneficiary's written permission before making beneficiary changes.

Benefit

Amount that the insurer will pay you if the insurer accepts your claim.

Cash value

Cash amount that the life insurer pays to the policyholder when a life insurance policy is cancelled.

It may also be possible to take out a loan against the cash value of the policy.

The cash value is not usually added to the face value of your policy, which is paid out upon your death.

This term is normally used with a permanent life insurance policy.

Contestability period

Period of time during which the insurance company can contest a life or health insurance claim based on incomplete or incorrect information the insured provided when applying for insurance.

In cases of fraud, there is no time limitation.

Death benefit

Amount of money that the insurer will pay your beneficiary or beneficiaries upon your death.

This term is normally used with a life insurance policy.

Material facts

Things you know that could affect an insurance company's decision about whether to insure you and what price (premium) you will pay.
 
For example, if you are applying for life insurance, you must tell the insurer if you smoke.

If you do not tell the insurer about material facts, the insurer could cancel your policy and refuse to pay any claims.

Pre-existing condition

Medical condition you know you already have before you apply for insurance—for example, asthma, high blood pressure or heart disease.

Rescission right

A policyholder's right to cancel a life insurance policy within 10 days of paying for it and to be refunded any premiums paid.

The process that the insurer uses to evaluate the risk associated with potential clients and to assess their eligibility to receive coverage.

The underwriting process will determine:

• how much coverage to provide the client
• which conditions are excluded, if any
• premium to be paid by the client.