How to Read a Life Insurance Policy (Part 1)

A life insurance contract is a legally binding document. Whether you're using your policy to set up inheritance, build wealth, or create a source of cash, it's important to read the documentation carefully.

Policy Schedule (Data Section)

The policy schedule is a document that outlines the key details of a life insurance policy, including the policy term, the amount of coverage, the premiums, and the beneficiaries. The policy schedule is typically included as the first page of the policy and will show you key details about your policy. Be sure to verify all details are correct.

The Policy Number

The policy number is one of the most important pieces of the policy schedule and is typically found on the first page. It is important to keep your policy number handy, as you may need to refer to it when making changes to your policy or filing a claim.

Definitions

The definitions explain key policy terms in plain language. Life insurance policies in their entirety can seem confusing, but the listed definitions will help you decipher exactly what the insurance company is communicating in the policy language.

Some common definitions found in a life insurance policy include:

The “insured” is the person whose life is covered by the policy.
The “policyholder” is the person who owns the policy and pays the premiums.
The “beneficiary” is the person or persons designated to receive the death benefit.
The “death benefit” is the amount of money payable to the beneficiary upon the death of the insured.
The “premium” is the amount of money the policyholder must pay to the insurer in order to keep the policy in force.
The “cash value” is the amount the living may return the policy for.
The “policy term” is the length of time for which the policy is in force.
The “exclusions” are events or circumstances that are not covered by the policy.
The “limitations” are restrictions on the amount of the death benefit that may be payable.

These are just some of the common definitions found in a life insurance policy. Other terms and definitions may vary depending on the specific policy and the insurer. It’s important to carefully review your policy and understand all of the terms and conditions before purchasing a life insurance policy.

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