Insurance Terms, Explained in Plain English
Insurance has a lot of confusing words. Here’s what they actually mean. Anywhere on this site, you can tap the next to a word for a quick answer.
Final expense insurance
A small whole life policy, often $5,000–$25,000, meant to pay for a funeral, burial and last bills so your family isn’t stuck with them.
Final expense (also called burial insurance) is a small whole life policy. The money goes to the person you name, and they can use it for the funeral, burial or cremation, medical bills, or anything else. Most plans are for people roughly 45 to 85, ask only a few health questions, and never require a medical exam. The price is set when you buy and does not go up as you age.
Level (Day-1) coverage
The full benefit is paid from the first day the policy starts.
With level, or “Day-1,” coverage, the whole face amount is paid if you pass away at any time after the policy starts. It is for people who answer “no” to the main health questions, and it usually has the lowest price of the three final expense types.
Graded coverage
Full benefit after about two years; in the first years a natural-cause death usually pays back premiums plus interest or a partial benefit.
Graded (sometimes called modified) coverage is for people with some health conditions. If death is from natural causes during the first two years, the plan usually pays a part of the benefit or returns the premiums paid plus interest. Accidental death is usually paid in full from day one. After the waiting period, the full benefit is paid. Details differ by carrier, so always read the policy.
Guaranteed issue (guaranteed acceptance)
No health questions — you can’t be turned down for your health — but it costs more and has a waiting period.
Guaranteed issue policies ask no health questions, so anyone in the age range can get one. Because the company takes everyone, the price is higher and there is a waiting period, usually two years, before the full benefit is paid for natural causes. During that time most plans return premiums plus interest. It is the safety net when other options say no.
Waiting period
The time, usually two years, before a graded or guaranteed policy pays the full benefit for natural causes.
A waiting period is the stretch of time after a policy starts before the full benefit is paid. Graded and guaranteed issue final expense plans usually have a two-year waiting period for death from natural causes. Accidental death is often covered right away. Level plans have no waiting period.
Term life insurance
Coverage for a set number of years (like 10, 20 or 30). Lower cost, but it ends when the term is up.
Term life covers you for a set period, such as 10, 20 or 30 years. It is usually the least expensive way to get a large amount of coverage, which makes it a good fit for replacing income or paying off a mortgage while kids are at home. If the term ends while you are living, the coverage stops and there is no cash value.
Whole life insurance
Permanent coverage that lasts your whole life, with a price that stays the same and a small cash value that grows.
Whole life lasts for your entire life as long as premiums are paid. The price is fixed when you buy it, and the policy builds a cash value over time. It costs more than term for the same amount, but it never runs out. Final expense is a small type of whole life.
ACA (Marketplace) health insurance
Health insurance for people under 65, bought through the federal Marketplace (HealthCare.gov in Mississippi), often with income-based savings.
The Affordable Care Act (ACA) created the Health Insurance Marketplace. In Mississippi it runs through HealthCare.gov. Plans cover doctor visits, hospital stays, prescriptions and preventive care, and many people qualify for tax credits that lower the monthly cost based on income. You can sign up during Open Enrollment or after a qualifying life event.
Medicare Supplement (Medigap)
A private plan that works alongside Original Medicare to help pay costs Medicare doesn’t, like deductibles and coinsurance.
Medicare Supplement insurance, also called Medigap, is sold by private companies and works with Original Medicare (Parts A and B). It helps pay some of the costs Original Medicare leaves behind, like coinsurance and deductibles. Plans are labeled with letters, and the benefits for a given letter are the same no matter which company sells it. It usually does not include drug coverage.
Medicare Advantage (Part C)
A private plan that replaces Original Medicare for your Part A and B benefits, often with drug coverage and extras, usually with a provider network.
Medicare Advantage plans (Part C) are offered by private companies approved by Medicare. They provide your Part A and Part B benefits, often include Part D drug coverage, and may offer extras. Most use a network of doctors and hospitals, and costs and rules vary by plan and county.
Medicare Part D
Prescription drug coverage for people with Medicare, sold by private companies.
Part D is Medicare’s prescription drug coverage. You can get it as a stand-alone plan alongside Original Medicare (and a Medigap plan), or it may be built into a Medicare Advantage plan. Each plan has its own list of covered drugs, so it matters which medicines you take.
Beneficiary
The person (or people) you choose to receive the money when you pass away.
The beneficiary is who receives the death benefit. You can name one person or several, and a backup (“contingent”) beneficiary in case the first one has passed. Keeping this up to date is one of the most important parts of owning a policy.
Face amount (death benefit)
The amount the policy pays out, like $10,000.
The face amount, or death benefit, is the dollar amount the policy pays to your beneficiary. For final expense it is often between $5,000 and $25,000, sized to cover a funeral and final bills.
NPN (National Producer Number)
A unique ID number for every licensed insurance agent in the U.S. You can look up any agent’s license with it.
The National Producer Number is assigned to every licensed agent by the National Insurance Producer Registry (NIPR). You can use it, along with the state license number, to check that an agent is properly licensed. Joe’s NPN and Mississippi license number are listed on the About page.
Still have a question? Ask Joe.