Premium, face amount, beneficiary and insured: the four words in your policy, explained plainly

When I sit down with a family to go over a policy, the same thing happens almost every time. We get to page three and someone says, "Mario, I signed this, but honestly I didn't understand half of it." That's nobody's fault. Insurance contracts speak their own language, and the Spanish versions are often poorly translated on top of that. After 15 years as an agent, I've learned something simple: if you understand four words, you understand most of your policy. Premium, face amount, insured and beneficiary. Let's take them one at a time.

The premium: what you pay to keep your policy alive

The premium is the payment you make to keep your coverage active. It can be monthly, quarterly or yearly, depending on what you choose. It isn't savings and it isn't an investment; it's the price of protection. With final expense insurance, for example, premiums start at $30 a month with no medical exam, but the exact amount depends on your age, your health and how much coverage you want. The most important thing I can tell you about the premium is this: if you stop paying it, the policy can be canceled. That's why I always suggest choosing an amount your family can keep up with month after month, even if the coverage is more modest. A small policy that stays in force is worth far more than a big one that lapses after six months.

A small policy that stays in force is worth far more than a big one that lapses after six months.

The face amount: the money your family receives

The face amount (you'll also see it called the "death benefit" or "coverage amount") is what the company pays when the insured person passes away. It's the number that actually protects the people you love. How much should it be? That depends on what it's for. If the goal is to cover a funeral, it helps to have a reference point: in Texas the average cost is around $9,200, and the funeral quotes I've seen with families range from $4,000 to $18,000. If you want to protect a mortgage, pay off debts or replace household income, then we're talking about life insurance, with coverage starting at $50,000.

The insured and the owner: not always the same person

The insured is the person whose life the policy covers. When that person passes away, the face amount is paid. Sounds obvious, but here's a detail that trips up a lot of people: the insured isn't always the one paying. It's very common for a daughter to buy a final expense policy for her mother. In that case, the mother is the insured and the daughter is usually the policy owner. The owner signs the contract, pays the premium and can make changes, like updating the beneficiary. One thing to keep in mind: to insure another adult, that person normally has to agree and sign. Nobody should end up insured without knowing it.

The beneficiary: who the money goes to

The beneficiary is the person, or people, who receive the face amount. With final expense insurance the money goes straight to the beneficiary, and that's exactly what lets a family pay the funeral home without borrowing money or passing the hat. Choosing your beneficiary carefully matters as much as choosing your coverage. Here's the advice I always give:

• Write the full name and relationship, not just "my kids." It avoids confusion when the time comes.
• Name a contingent (or secondary) beneficiary too, in case your primary one passes away before you.
• If you want to leave something to a minor, ask me first. In many cases the money can't be paid directly to a child, so it's worth planning ahead.
• Review your beneficiary after a divorce, a wedding or the birth of a child. The policy doesn't update itself.
• Tell your beneficiary the policy exists and where you keep it. Insurance nobody knows about helps nobody.

The one thing I ask before you sign

Ask about everything. I mean it. If a word isn't clear, stop and ask, whether it's me or any other agent. A good agent will explain the premium, the face amount, who the insured is and who the beneficiary is, calmly and in your language. If you feel rushed, that tells you something already. And if you have a policy sitting in a drawer and you're not sure what it says, I'm happy to help you read it, even if you didn't buy it from me.

All coverage is subject to approval, and cost varies based on age and health. Mario Barrera, licensed insurance agent: TX Lic. #3008095, NPN 17440153. Licensed in Texas, California, Florida, New York, Illinois, Arizona, Virginia and Maryland. This article is educational and does not replace reading your own policy.

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