Understanding the basic life insurance terminology helps us to understand the various benefits and features of a policy. You might wonder what does various insurance terms like “Maturity Benefit” or “Grace Period” means. Often, such confusing terminologies prevent individuals from buying life insurance and even if they do, they don’t necessarily understand the meaning of various terminologies used.
Therefore, to help you understand these terms, given below is the list of 15 important life insurance terms and their explanations.
An individual who buys the life insurance policy as well as pays its premium is known as the policyholder. He/she may own the policy, but may or may not be the life assured.
The insured or protected individual is known as the life assured. In case of any unfortunate event such as the death of the Life Assured, the nominee will receive the insurance amount.
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.
It is the sum you pay to keep your life insurance policy active. In case if you are unable to pay the premium amount either before its due date or within the grace period (see term #8), your policy may lapse.
The premium amount depends on various factors like
- Age of the Life Assured
- Type of policy chosen
- Sum Assured selected
- The Policy Tenure
- Lifestyle habits such as Smoking / Drinking
Sum Assured is the guaranteed amount the nominee will receive in case of unfortunate death of the life assured. 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 Life insured individual’s demise during the policy tenure.
It is the duration for which the life insurance policy provides coverage. Depending on the type of policy, its terms and conditions of the insurance company, the policy tenure of life insurance policies vary.
The Nominee is a person nominated by the policyholder, who receives the life insurance pay-outs and other benefits in case of an unfortunate eventuality. (Also known as the beneficiary). The nominee must be declared at the time of purchasing the policy. Policyholder’s spouse, children, parents can be declared as nominee who may have immediate financial dependence on you.
A policy will get terminated due to non-payment of premium amount. The policy gets lapsed when the due premium is not paid even after the grace period. Some Life Insurance companies offer the facility to revive the lapsed policy if outstanding premiums are paid by the policyholder.
The extension given by the insurance company to the policyholder after the premium payment due date is known as the grace period. If the policy holder pays the outstanding premium amount, then protection cover of the policy continues.
It is the amount that is paid to the nominee in case of death of the life assured 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 the rider benefit as well.
Maturity benefit is the amount paid to the policyholder upon completion of the policy tenure.
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 specific time period as mentioned in the policy document. This period is known as the free-look period. The premium will be refunded after deducting the proportionate risk premium, stamp duty charges and cost of medical examination incurred if any.
These are certain things which 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 a term insurance plan. E.g. If a person commits suicide within 1 year from policy inception date, the plan will be void and only 80 % of the premiums paid will be payable as a death benefit.
If you do not pay premium during the grace period, your policy gets lapsed. However, if you wish to continue the policy, you are given an option of re-activating your lapsed policy. However, the re-activation process must be completed within a specific period of time after the grace period ends. This period is known as a revival period.
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.
Riders are additional benefits that enhance the coverage of your plan. There are optional riders to enhance your financial protection and to secure yourself/your family against accidental disability or demise, which you can add as an additional protection.
So here are 15 life insurance terms explained briefly. We hope this guide will simplify your understanding of insurance. Happy Learning!