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New to buying life insurance? Confused about the various terms stated in your policy document? We are here to help you understand the basic terms of life insurance so that you can become an empowered policyholder.
Although life insurance is true for everyone, the terminology of life insurance is not really. This is due to the policy document of Life insurance There are some terms and concepts that not everyone understands. Conclusion: The policyholder may be completely or partially unaware of the true meaning of the terms in his policy. To avoid such a situation and to help the policyholder stay informed and up-to-date, here we provide a list of life insurance terms with at least 18 terms that are commonly used in everyday insurance lingo. Read the blog to improve your knowledge of life insurance terminology.
Life insurance terms and definitions
If you are new to buying life insurance and want to refresh yourself with the various terms and concepts mentioned in the policy document, here is your chance. 18 such terms commonly found in life insurance policy documents are defined here:
- Sum Assured: It refers to the amount payable by the insurance company in case of unfortunate death of the insured. This amount is paid to the nominee selected by the insured during the lifetime of the insured. In case of death of the insured during the term of the policy, the sum assured chosen by the insured while purchasing the policy.
- Death Benefit: A life insurance policy will most commonly cover this period. Death Benefit is a cash benefit paid by the Insurer to a nominee or beneficiary of the Insured. However, keep in mind that death benefit and sum assured are not the same. The death benefit may be equal to or greater than the sum assured, including other benefits such as riders.
- Free-Look Period: It is provided by the insurer while purchasing a new life insurance policy. It refers to a specific period of time (usually 15-30 days) given to the policyholder to fully review the terms and conditions of the purchased policy. If they are dissatisfied with the T&C, they can cancel the policy and return it within the free-look period.
- Exclusions: They specify certain provisions which are not covered in the life insurance policy and therefore cannot be claimed from the insurer. It is important to read the exclusions section of the policy document carefully before purchasing.
- Grace Period: This is an extension of time given by the insurer if the policyholder fails to pay the premium by the due date. This is generally 15 days from the date of premium payment in case of monthly premium payment and 30 days in case of annual premium payment.
- Claim: If the life insured dies during the term of the life insurance policy, this can be done by a nominee of the life insurer to the insurance company. In this case the beneficiary can claim a death benefit from the insurance company.
- Age of Maturity: Age of life assurance refers to when the life insurance policy ends or how long it continues. In other words, the insurer will clearly mention the maturity age in the policy document.
- Durability Assurance: It is equivalent to an insured person in a life insurance policy. The plan is purchased in the name of the life assured to provide life insurance coverage to the nominee in case of untimely and unfortunate death.
- Note: The policyholder of a life insurance policy document may or may not always be the life insured. For example, if the policy is purchased in the wife’s name, the husband may be paying the premium for the plan as the wife is a domestic worker. In this case, the husband is the policy holder and the wife is the life assured.
- Recommended by: It refers to the legal heir chosen or nominated by the policyholder during their lifetime to be paid the death benefit by the insurance company in case of death of the insured during the policy term. Policyholder can choose spouse, children or parents as their nominee.
- Premium: The common term used in every insurance plan and life insurance policy is no different. It refers to the amount payable to the insurer to maintain the policy so that the policyholder continues to enjoy its coverage benefits. Premiums can be made in different ways – monthly, quarterly, half-yearly and annually.
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Some of the terms commonly used in life insurance plans
Many more terms are used in everyday speech in life insurance policy documents. Here we list some more for your better understanding:
|S. No||Terminology of life insurance policy||Definition and meaning|
|11.||Policyholder||It is the proposer or purchaser of life insurance who pays the premium for the plan|
|12.||Policy period||The duration of the plan (usually 1-100 years) for which the insurance company provides coverage to the insured.|
|13.||Rider||Additional benefits that enhance the coverage scope of the life insurance plan by paying additional premium; Examples – Critical Illness Rider. Crash Death Rider|
|14.||Survival / Maturity Advantage||Insurer is the amount paid by the insured to the insured|
|15.||Surrender value||Amount paid by the insurer to the policyholder if he wants to terminate the policy before the maturity age|
|16.||Renaissance period||A specified time period given by the insurer to the policyholder to renew the policy after the policy is surrendered. Failure to pay the premium even during the grace period will result in the policy reverting.|
|17.||Tax benefits||Tax exemptions provided under Section 80 (C) of the Income Tax Act, 1961 on premiums paid for the policy; As per Section 10 (10D) of the ITA, the benefits paid by the insurer to the policyholder and/or nominee are not taxable.|
|18.||Underwriter||A person appointed by an insurance company to assess the risk factor involved in offering life insurance to a prospective policyholder; The policy is issued only on the consent of the contractors|
read more: What is an Incremental Term Life Insurance Policy?
There are many other terms used in life insurance policy documents; However, we were able to cover only 18 of the most commonly used ones in this blog. We hope this blog will improve your understanding of the day-to-day terms used in life insurance plans and help you make an informed decision when purchasing one. For more information on the best life insurance plans in India, visit PayBima.
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Frequently Asked Questions on Life Insurance Terms
What is term in life insurance?
Terminology refers to common terms used in life insurance policy documents that may appear complex and difficult to understand by the policyholder.
What is the term used in insurance to express facts?
Disclosure is a term used to disclose complete and accurate facts about an insurance policy. It is the responsibility of both the parties involved – the insurer and the insured – to disclose the full facts to each other.
Why do we use words in our daily life?
Terminology is used to help better understand certain concepts and to help non-experts learn about those concepts in a simple, easy-to-understand manner.