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15 Basic Life Insurance Term Everyone Should Know About

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Cutting through a thicket of jargons of insurance world is no fun. For instance, why would a person want to know the meaning of a gloomy term like “death benefit”? However, if you are buying a life insurance policy, it’s an important term to know.

Often, such confusing terminologies prevent individuals from buying life insurance and even if they do, they don’t necessarily comprehend what they have purchased.

The only way to decide on the right life insurance policy is to know these terms. Therefore, to help you understand the slightly puzzling world of insurance, given below is the list of 15 important life insurance terms and their explanations.


1. Policyholder

The individual who buys the life insurance policy as well as pays its premium is known as the policyholder. Although, he/she may own the policy, but may or may not be the life assured.


2. Life Assured

The insured or protected individual is known as the life assured. She is the one for whom the insurance policy is brought to cover the risk.

It’s vital to understand the difference between a policyholder and life assured. For instance, when a husband buys an insurance policy for his wife, the husband is the policyholder whereas his wife is the life assured.


3. Premium

It is the sum you pay to keep your life insurance policy active. In case if you are unable to pay the premium either before its due date or within the grace period (see term #12), your policy terminates.


4. Sum Assured

Sum assured is the amount that the insurance company agrees to pay on the death of the life assured or event of some other insured occasion. In most cases, the decision to arrive at the sum assured is based on the financial loss that may emerge because of the demise of the life assured.

The policyholder chooses this amount at the time of purchasing the policy. It is paid to the nominee (see term #6) in case of insured individual’s demise during the policy tenure.


5. Policy Tenure

It is the duration for which the life insurance policy provides coverage. Depending on the type of policy, its terms and conditions and insurance company, the policy tenure of life insurance policies vary.


6. Nominee

The person nominated by the policyholder, who receives the life insurance payouts and other benefits in case of an unfortunate eventuality is called the nominee (also known as the beneficiary). Policyholder’s spouse, children, parents could be his nominee.


7. Maturity Age

It is the age of the insured at which the life insurance policy terminates or closes. Essentially, the insurer declares in advance the maximum age till which the life insurance policy will be given to the life insured.

For example, if you are 35 years of age, and decide on a term plan with a maturity age of 65 years, it implies that policy will have coverage till you are 65 years of age, and its policy tenure is 30 years.


8. Rider

Rider is an add-on that provides extra coverage, by paying extra cost. There are diverse types of riders that can be purchased alongside your base policy. For example:

Rider offered along with base policy may differ from insurer to insurer.


9. Death Benefit

It is the insurance money that is paid to the nominee in case the life assured passes during the policy period. Remember, death benefit and sum assured are no similar terms. Because the death benefit can be equal or higher than the sum assured as it can include rider benefit as well.


10. Survival/Maturity Benefit

Survival benefit is the amount paid to the policyholder upon completion of the policy tenure.

No survival or maturity benefit is paid under term plans. However, in other life insurance plans (ULIPs) you will discover survival/maturity benefits paid.


11. Exclusions

These are certain things that are not covered under a life insurance policy. If the claim made is based on these exclusions, the insurance company does not pay any benefit.

For instance, Suicide is an exclusion in any life insurance plan.


12. Grace Period

The extension given by the insurance company to the policyholder after the premium payment due date is known as the grace period.


13. Free-look Period

If you do not agree or are not comfortable with the terms and conditions of your purchased policy, you can return the same within a time frame given. This period is known as the free-look period.


14. Revival Period

If you do not pay premium during the grace period, your policy lapses. However, if you wish to continue the policy, you are given an option of re-activating your lapsed policy. However, the re-activating process must be completed within a specific period of time after the grace period ends. This period is known as a revival period.


15. Claim process

In case of life assured’s demise during the policy tenure, the nominee lodges a claim in order to receive the death benefit. This process is known as the claim process.

 

So here are 15 life insurance terms explained briefly. We hope this guide will simplify your understanding of insurance. Happy Learning!

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*Premium for 30 year old, Non Smoker Male. Policy Term: 30 years for Basic Life Cover option inclusive of Goods & Services Tax. UIN 133N058V03
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