Investing in life insurance plans is a no-brainer, considering how it safeguards your family’s financial future. When you buy a policy, you enter into a contract with the insurance company. Several terms are contained in the policy document, and you should be able to thoroughly read the same to arrive at a comprehensive understanding of your policy. Here’s looking at some of these terms closely.
Life Insurance Terms That Should Be Understood Carefully
These are the life insurance terms that deserve a careful understanding so you can comprehend your policy document properly:
- Policyholder- This is the individual or customer who proposes to buy the policy and pays a premium amount for the same. The policyholder is the policy owner, although the policyholder may/may not be the life-assured or insured person.
- Life Assured- This means the insured individual or the insured person for whom life coverage is purchased. The life assured may/may not be the policyholder, as mentioned earlier. Suppose a husband buys a policy for the wife, who is a homemaker and pays the premium on her behalf. Hence, the husband is the policyholder, although the wife is the life assured.
- Sum Assured- This is the coverage, or the amount agreed to be paid by the insurance company to the insured person or the nominees/family members upon the policyholder’s demise within the policy tenure or the occurrence of any other event which is insured. This is also called the coverage amount. The policyholder has to select the sum assured while buying life insurance plans.
- Nominee- A nominee is a legal heir of the policyholder or life assured, to whom the insurance company will be paying out the sum assured and accompanying benefits in case of any loss or other unfortunate event as covered by the policy. The nominee may be the insured person’s spouse, children, or parents, among other eligible individuals. The nominee has to submit the claim for life insurance in case the insured person passes away within the policy duration.
- Policy Tenure- The tenure of a policy is the period or duration for which the life insurance coverage will be valid. This may vary between one and 100 years or the entire lifetime of the insured individual, depending on the policy type and terms.
- Maturity Age- This is the life assured’s age at which the policy concludes or terminates. This is the same as the policy’s tenure, although it is a different term that denotes the tenure for which the policy will be in force. The insurance company will declare the age till which it will provide life coverage to the life assured while purchasing the policy.
- Premium- This is the amount to be paid by the policyholder for keeping the plan active and getting continued life coverage for the entire policy period. You can use a life insurance calculator to determine the premium payable for a specific coverage amount.
- Single Premium Payment- This means paying the premium in one lump sum amount for the whole tenure of the policy.
- Regular Premium Payment- This means paying the premium regularly throughout the policy duration. Options include quarterly, monthly, yearly, and half-yearly intervals.
- Limited Premium Payment- In this system, you can pay your premiums for a limited duration. You will not be paying premiums for the entire policy tenure but for a pre-determined number of years.
- Riders – These are additional paid features that enhance the overall scope of the insurance policy. They are purchased either while renewing or buying a policy and come in various types. Some of them include an accidental death benefit, critical illness coverage, hospital cash, waiver of premium, and accidental total/permanent disability benefit riders, among others.
- Death Benefit- This is paid to the nominees of the policyholder in case of the demise of the life assured within the policy period. The death benefit may be the sum assured or even higher than the same if any additional benefits and rider benefits are opted for under the policy. However, this does not apply in the case of term insurance, where any guaranteed additions or accrued bonuses are absent.
- Maturity or Survival Benefit- This means the amount paid by the insurance company when the life assured outlives the policy’s tenure. Term insurance plans do not come with such benefits, although they may be included in other life insurance policies.
- Free-Look Period- The period within which the customer may return the insurance policy purchased earlier. Customers can return their policies within 15-30 days of receiving the policy document in case they are unsatisfied with the terms and conditions or for other valid reasons. The insurance company will refund the premium amount after subtracting the costs incurred for medical examination, stamp duty, etc.
- Grace Period- The insurance company will give you a grace period to pay your premiums if you cannot pay them by the due date. It is 15 days for those paying monthly premiums and 30 days for those paying annual premiums.
- Surrender Value- If you want to terminate your policy before maturity, the insurance company pays out the surrender value to you. However, not all life insurance policies have a surrender value, and you should check whether the plan offers any such surrender value beforehand, along with the amount.
- Paid-Up Value- If you discontinue premium payments after a certain period, the insurance company will give you a choice for conversion of the insurance policy into a paid-up policy. The sum insured will come down proportionately as per the number of premium payments. In case of any accompanying benefits, they will be linked to the lower sum insured amount. This is known as the paid-up value.
- Revival Period- The policy terminates if the premium is not paid in the grace period. If you still wish to continue your plan, the insurer will allow you to revive or re-active the policy. This should be done within a particular duration after the conclusion of the grace period.
- Underwriters- They are the teams analyzing insurance risks, and this process starts before the policy is issued. It concludes with the claim settlement. If the underwriters give the approval, a policy is given to a policyholder. The claim amounts are also paid only after their approval.
- Exclusions- These are events, things, and aspects that do not have coverage under the policy, and policyholders cannot get claims against the same. For example, suicide as a cause of death will not have coverage within a life insurance policy.
- Claim Process- It refers to submitting a claim to get the sum assured or death benefit upon the insured’s demise within the policy period.
These are a few terms that you should study carefully before you receive your policy document. They will help you better understand policy features and other terms and conditions.