Understanding life insurance is very simple, since its operation is quite straightforward. However, certain terms are used in the sector that may seem strange if you have never taken out a life insurance policy. We review all the most common concepts, so that you have no doubts.
More than 20 million people in Spain have a life insurance policy. That is because it is a useful and easy-to-understand product. But, as happens in any professional sector, insurance uses some words that are a bit particular. For example, at the beginning of the pandemic, words like variant or antigens sounded strange to us, since they are medical concepts.
The basic dictionary for understanding a life insurance policy
Therefore, in this article we review some of the basic words needed to understand life insurance. There are only a few and you may already know more than one. If they all sound familiar, you will have no problem when you want to sign a policy to protect your family’s future.
This is the money paid periodically in exchange for life insurance protection. It is usually annual, but it can also be quarterly or semi-annual, for example.
The person who takes out the life insurance and is responsible for paying the premium.
This is the person who is protected. In other words: if she dies, the company will pay the indemnity. The policyholder and the insured are usually the same person, although this need not always be the case. For example, a company may be the policyholder of the insurance it has taken out for all its employees, but the insured are each of its employees.
These are all those cases in which the life insurance would act. Death is always covered, for any cause: illness, accident… But other coverages can also be added, that is to say, other circumstances that, if they occur, would make the company pay the agreed indemnity.
An example of such coverage is disability. If contracted, the insured receives compensation in the event of suffering an illness or accident that causes him/her to request permanent incapacity or disability. Other coverages can be serious illnesses or triple capital for traffic accidents, for example.
This is the person who will receive the compensation money if something happens to the insured. Most often it is a family member, but it can also be friends or even companies.
6. Capital or indemnity
This is the money that is contracted, that is, the amount that the beneficiary will receive if the insured dies.
Those risks that are not included in the contract, or particular circumstances in which the company would not be responsible.
There are few exclusions in this type of product, and most of them are highly improbable (wars, for example), so you need not worry about them. Some of the most common are suicide during the first year of the contract or acts of recklessness.
In addition, exclusions vary depending on the company you choose. Therefore, the best advice is to have specialized advice to choose the product that best suits you and your circumstances.
8. Right of withdrawal
When you sign a policy of more than six months, you have 30 days to cancel the contract without having to give explanations. This is established in Law 50/1980.
This right can be useful, for example, in cases where a bank forces us to sign its life insurance policy in order to give us a mortgage. Although it is an illegal practice, it is still frequent, so it is important to know how to avoid it. You can accept the bank’s policy, which can be twice as expensive as an insurance policy, sign the mortgage and cancel the insurance after 30 days. The bank will only be able to keep the part of the premium corresponding to the days it has protected you (i.e., less than 30 days).
9. Waiting period
Some insurance policies do not come into effect at the time they are taken out, but establish a period of time until they are put into effect, known as a waiting period. Life insurance policies do not have a waiting period, so they protect from the very moment they are signed. This term is more common in cases such as health policies, for example.
If you were worried about having trouble understanding the contract before signing it, now you can rest assured. Besides, you can always contact our advisors to guide you through the whole process, so that you can choose only the product you need, without overpaying and with the right protection for you. Understanding life insurance is very easy: now you just need to find yours, take a look at our comparator and you will be surprised!