Financial Literacy: Words You Need To Know
Financial terms can be a lot like alphabet soup letters swirling around in a financial broth without clear-cut associations. But with the diligence similar to that of young students learning to read, and with the help of a well-organized financial glossary, you can quickly make sense of obscure terms.
Ten common financial terms are displayed here. Plus you can check out hundreds of additional financial terms in The Resource Center found on this Farmers web site.
Terms that you should know:
Annuity - A contract that provides for a stipulated sum payable at certain regular intervals during the lifetime of one or more persons, or payable for a specific period.
Beneficiary - The party to whom the proceeds of a life insurance policy or the values of an annuity policy are payable when the insured or annuitant dies. There are, however, various types of beneficiaries, including several which are defined in the glossary found in The Resource Center. These include "contingent beneficiary," "irrevocable beneficiary," "primary beneficiary," and "revocable beneficiary."
Disability Income Insurance - This is a form of insurance that provides periodic payments to replace income if the insured is unable to work due to injury or illness.
Free Look - A period of time during which a policy owner may examine a newly issued policy and, if not satisfied, surrender it in exchange for a full refund of premium.
Life Insurance - Insurance in which the risk insured against is the death of a particular person ... and the insurance company agrees to pay a stated sum or income to the beneficiary.
Medical Payments Coverage - A coverage found in auto and liability policies that pays medical expenses to covered (injured) person without regard to liability.
Personal Injury - Distinguished from "bodily injury," this term relates to injury arising from false arrest, libel, slander, wrongful eviction, etc.
Pre-existing Condition - A physical or mental condition that existed before issuance of a policy.
Temporary Insurance Agreement - A separate contract included with a life insurance application providing coverage to eligible proposed insured during underwriting, which ends when the application is issued or declined.
Term Insurance - A type of life insurance policy that provides protection for a specified time period; most types of term insurance do not have cash value.
Test your financial literacy quotient:
Click what you believe to be the correct answer for each of the three following questions. You may find some of the terms in the above list of definitions, but for those that are not mentioned above, refer to The Resource Center glossary. (Scroll down for the correct answers)
- 1. As a working couple with two children, we believe that we should have:
a. disability insurance
b. life insurance
c. domestic insurance company
d. both (a) disability insurance and (b) life insurance
e. both (a) disability insurance and (c) domestic insurance
- A drunken driver ran into us and caused serious damage to our car. As responsible insured drivers we think he should pay for all our damages, but he says he doesn't have to pay because we have:
a. a temporary insurance agreement
b. no-fault automobile insurance
c. term insurance
- We want to make sure our children get the proceeds of the life insurance policies we both have if one or both of us should die, so we are listing our children and each other as our:
a. agent
b. annuitant
c. beneficiaries
Answers:
- (d) both (a) disability insurance and (b) life insurance are important for working parents. (c) a domestic insurance company is an insurer organized under the law of the state of domicile.
- (b) no-fault automobile insurance is correct. (a) a temporary insurance agreement refers to a separate contract included with a life insurance application providing coverage to eligible insureds during underwriting, which ends when the application is issued or declined. (b) no-fault automobile insurance in an insurance plan providing that after an automobile accident, each party collects from his or her own insurer, regardless of fault. (c) term insurance is a type of life insurance policy that provides protection for a specified time period, most do not have cash value.
- (c) beneficiaries is correct. (a) an individual appointed by an insurance company to solicit, negotiate, effect or countersign insurance contracts, and to provide policyholder services on its behalf. (b) an annuitant is the person whose life is measured to determine the timing and amount of annuity payments.
If you got all three correct you are well on your way to becoming a financial wizard. Two correct answers put you in the upper echelon of those with financial know-how. If you got one correct, be happy that you are building a financial base. If you didn't get any correct, do not despair. That is why The Resource Center glossary is here for your convenience.