Before you purchase life insurance, make sure to understand these five terms that will pop up in your policy. Consider this example as we go through the terms. Sam is a 35-year-old working father. He has a wife and three children.

1. Premium

As is the case with most insurance policies, you will need to pay a certain amount of money each month. This out-of-pocket payment is what you spend each month to maintain the policy. Depending on your life insurance policy, the premium payment could be locked in at a certain amount, or it could change as you change your policy.

2. Face Value

The face value of your life insurance plan is the amount of money the insurance company owes your family when you die. This is also called the death benefit of your insurance policy.

3. Insured

Insurance companies may use terminology such as "the death benefit of the insured is $55,000."� The "insured" is referring to the person that the policy is for. For example, if Sam purchased life insurance to help his wife and children if he died unexpectedly, he would be considered the insured. Not his wife nor children.

4. Policy Owner

In most situations, the policy owner is also the insured in a life insurance policy. If Sam's employer was providing the life insurance, his employer would be considered the policy owner instead of Sam.

5. Beneficiary

If the insured does indeed pass away during the terms of the life insurance policy, the insurance company would pay death benefits to the beneficiaries. In our example with Sam, his wife and children would be considered the beneficiaries of the insurance policy.

Citation: BYU Marriott School of Management Personal Finance A principles-based approach, 5th edition, Bryan L. Sudweeks Ph.D. CFA