Life Insurance Terms You Should Know
A life insurance policy is a contract between the policyholder and the insurance provider, wherein financial protection or investment options (in some cases) are provided to the policyholder in exchange for monthly premiums.
You may know nothing about Life Insurance – so here we will discuss the most commonly used terms in Life Insurance
30 Common Life Insurance Terms You Must Know
- Policyholder: The person who purchases the life insurance plans and pays the premium. He is the owner of the policy but may or may not be the life assured.
- Life Assured: Life assured is the individual, primarily the breadwinner, who is insured to cover the financial risk of his untimely death.
- Agent: A professional advisor who can help you find the most appropriate policy at the most reasonable prices after charging some fees from you.
- Sum Assured or Insurance Coverage: The amount that the insurance company promised to pay on the death of the policyholder during the policy tenure. This amount is paid to the nominee and is chosen by the policyholder at the time of purchase.
- Annuity: This is when the death benefit is paid out in installments
- Nominee/Beneficiary: The legal heir nominated by the insured to whom the insurance company will pay out the sum assured and other benefits in case of an unforeseen eventuality. The nominee can be the policyholder’s wife, child, parents, etc.
- Group Coverage: Life insurance coverage purchases by an employer or organization provides coverage to their employees as supplemental life insurance coverage.
- Policy Tenure: The duration for which the insurance plans provide life insurance coverage ranges from 1 year to 100 years or whole life in which the life coverage is until the policyholder is alive.
- Hazard: Any condition that can lead to a loss
- Maturity Age: Maturity age is the policyholder’s age at which the policy ends or terminates. For example, if life insurance is purchased with coverage until the policyholder is 65 years old, this will be the maturity age.
- Insurable Interest: This is proof that the beneficiary would suffer financially if the policyholder died. For example, a wife who is economically dependent on her husband will have to prove her insurable interest.
- Premium: The fees or payment that the policyholder pays to the insurance company – which could be monthly/quarterly/bi-annually/or annual to keep the life insurance plan active.
- Joint Life Insurance: Life insurance plans that are jointly held by multiple policyholders – typically couples.
- Premium Payment Term: The premium payment term refers to the total number of years that the policyholder has to pay the premium. In Regular Premium payment, the premium is paid throughout the policy term. In Limited Premium Payment, the premium is paid for a certain pre-fixed number of years, and in Single Premium Payment, a lumpsum premium is paid only once.
- Premium Frequency: This refers to the interval at which the policyholder pays their premium. In Regular Premium Payment, for instance, the premium can be paid annually, quarterly, or monthly.
- Riders: These are add-ons or additional paid-up features to extend the scope of the fundamental life insurance policy. These can be added at any point in time, and some of the most common ones are:
- Accidental Death Benefit Rider
- Waiver of Premiums
- Critical illness Cover
- Accidental Total and Permanent Disability Benefit Rider
- Hospital Cash
- Non-participating Life Insurance – A life insurance plan that does not have any cash value, and provides no investment structure; for example, a term insurance plan, is a non-participating life insurance policy.
- Death Benefit: The amount paid out by the life insurance company to the nominee in case of the policyholder’s death.
- Face Value: This is another term used for the policy’s death benefit
- Survival or Maturity Benefit: If the policyholder outlives the tenure and completes the pre-defined number of years under the procedure, the promised amount is paid out, especially in a guaranteed return plan or income return plans.
- Free-look Period: Normally, a 15-30-day period when the policy is purchased, the policyholder may choose to return the purchased policy.
- Grace Period: An extension of 15-30 days given to the policyholder to pay the renewal premium for his policy on time after the premium payment due date. If the payment of premium is not before the end of the grace period, the policy may stand terminated or lapsed.
- Surrender Value: An amount paid out by the insurer to the insured if he decides to discontinue the plan before the maturity age.
- Paid-up Value: If the insured cannot pay his premium after a certain period, he can convert his policy into a reduced paid-up policy, with a reduced sum insured which is the paid-up value.
- Revival Period: After the grace period is over, the insurance company provides a revival period during which the policyholder can continue paying a premium and activating his policy. This is done after the prior approval of the Underwriters.
- Lapsed Policy: Termination of a policy due to non-payment of the premium amount.
- Underwriters: Professional experts evaluate the risk involved in insurance as soon as the insurance policy begins, and the evaluation ends with the settlement of the claim. Only the underwriters can approve the policy to be issued and the claim benefit to be paid out to the nominee.
- Universal Life Insurance: This is the policy wherein the insured can adjust the premiums paid according to changes in his financial income.
- Tax Benefits: Any premium paid towards the life insurance is eligible for tax exemptions and deductions under Section 80 (C) or Section 10 (10D) of Income Tax Act, 1961, with the maximum amount of Rs.1.5 lakh.
- Exclusions: These are circumstances or situations which the insurer prescribes in the occurrence of which no claim or benefit will be paid out to the policyholder.
- Claim Process: If the policyholder passes away during the policy’s tenure, the nominee needs to file a claim following a stringent pre-defined process to receive the death benefit as mentioned in the policy.
The above glossary will help you understand life insurance definitions, phrases, most common terms, and concepts. You will be better prepared to take the next step in comparing policies and purchasing the most lucrative and beneficial one without any trouble or misconceptions.