Dave Ramsey says you should understand these terms before buying life insurance

Image Source: Getty Images

Understanding the details of life insurance is important.

Key Point

• Life insurance is an important purchase and, therefore, there are many things that consumers should know before purchasing life insurance.
• Dave Ramsey urges insurance buyers to understand key terms such as ‘death benefit’, ‘beneficiary’ and ‘policyholder’.

Consumers can’t go wrong when it comes to buying life insurance. That’s because this insurance provides important protection for loved ones left behind after death. Without proper compensation, surviving family members may struggle to pay funeral expenses and other bills without the income the deceased provided.

Unfortunately, the purchasing process can be confusing. Especially for those unfamiliar with the terminology.

Luckily, learning a few basics can help ensure proper coverage. In particular, financial expert Dave Ramsey recommends understanding some key terms before purchasing coverage.

Life insurance terms that consumers should know

Ramsey recommends learning the industry-specific language before buying life insurance so you can more easily understand how it works and what different policies offer. increase. Specifically, there are seven specific terms that Ramsey says consumers definitely need to understand. they are:

1. Death benefits: A death benefit is money paid by an insurance company when the insured person dies.
2. Beneficiary: The beneficiary is the person who receives the death benefit. As Ramsey explains, the beneficiary can be “anyone you name,” but often the person buying the coverage designates a spouse or child as the beneficiary.
3. Claim: In this way, in the event of death, the beneficiary recovers the death benefit. As Ramsey explains, it involves making “a formal request to the life insurance company to receive a death benefit.” All insurance companies have their own procedures when making claims.
4. Insured: The insured is the person who is covered by the insurance for the rest of their life and to whom the death benefit is paid upon death.
5. policy: Ramsey describes policy as “a contract between you and an insurance company.” State the terms of compensation.
6. Policyholder: This is the person who owns the policy. The insured and the policyholder are usually the same, but this is not always the case. “You can buy insurance for another person,” Ramsey said.
7. premium: A premium is the amount paid for an insurance premium. Policyholders can pay annual or monthly premiums.

As Ramsey explains, learning these definitions is “quite easy,” but consumers need to know “some common terms to really understand how life insurance works.” there is.

How to enroll in correct life insurance

Knowing the above terminology will help consumers make informed choices when purchasing or purchasing coverage. But that’s just the first step. To get good coverage you also need:

• Select the type of life insurance to purchase: Term insurance is more affordable than whole life insurance, but provides coverage for a limited period of time. A regular life is often the better choice because most people only need coverage while their loved ones depend on their income.
• Determining Required Coverage: Although Ramsey recommends purchasing insurance that covers 10 to 12 times the insured’s annual income, consumers use the DIME formula to pay off their debts, recoup their income, and pay their housing costs. You can also buy insurance to cover the cost of your loan and educate your children.
• Shop for insurance coverage: Policy prices and terms vary by insurance company. Getting quotes from several different companies makes it easier to find the right policy.

Knowing Ramsey’s preferred language will help you purchase life insurance coverage and make your final purchase choices.