Everyone these days is talking about life insurance as a necessity. But, what is a life insurance plan, and what does a life insurance company do? A contract between an insurance policy holder and an insurance company in which the insurer agrees to pay an amount of money in exchange for a premium upon the demise of an insured person or after a specific amount of time is known as life insurance.
A life insurance plan serves as a safety net, ensuring that your family has access to the needs of life while you are away. But, there are specific terminologies we do not understand when buying life insurance plans. So, let us discuss them in detail.
Life Insurance Terms You Should Know
Let's start here and become familiar with the fundamental terms used in life insurance.
- Policyholder: The proposer and payer of the premium for the life insurance policy is known as the policyholder. The policyholder, who may or may not be the life assured, is the legal owner of the contract.
- Sum Assured: A sum assured is the amount of money the insurance company pays to the policyholder based on the amount you specified when you bought the policy.
- Life Assured: "life Assured" refers to the insured or covered individual. The nominee will receive the insurance sum in the misfortuned event, such as the death of the life assured.
- Nominee: A person who receives the benefit in case of death of the insured person is a nominee. When purchasing a life insurance policy, the insured individual selects or names a nominee. Typically, the nominee is the spouse, kids, or parents. The insured party may designate one or more individuals as nominees.
- Premium: The premium is what you pay each month to keep your life insurance policy active and get coverage without the payment of the premium. Your life insurance policy will lapse, and you won’t get its benefits.
- Policy Tenure: The length of time the policy offers life insurance coverage is known as the "policy tenure." Depending on the type of life insurance plan and its terms and conditions, the policy tenure can be any duration from 1 year to 100 years or full life.
- Maturity Age: A maturation benefit is a lump sum payment from the life insurance company when your insurance policy matures. In essence, this implies that if your insurance policy has a 15-year term, you, the insured, will get a payout at the end of that period.
- Riders: Riders are add-ons that extend the coverage of the leading life insurance policy. Riders are purchased at the same time when you buy the insurance policy.
- Death Benefit: The 'Death Benefit' is the amount paid to the nominee by the life insurance company if the policyholder dies within the policy's term. If you're wondering if the sum guaranteed and the death benefit are the same, don't be because the death benefit can be more than the sum guaranteed and may contain rider and additional benefits.
- Grace Period: The grace period is the extension granted by the insurance provider to the policyholder after the premium payment due date. If the policyholder pays the overdue premium amount, the policy's protective cover continues.
- Lapsed Policy: Non-payment of premiums will result in the cancellation of insurance. The policy lapses when the due premium is not paid even after the grace period, some life insurance companies may renew a lapsed policy if the policyholder pays the due premiums.
- Free-Look Period: If you do not agree with or are uncomfortable with the terms and conditions of the life insurance that you have purchased, you may forfiet it within the time frame specified in the policy document. This is referred to as the free-look time.
- Revival Period: If you do not pay your premiums within the grace period, your insurance will be cancelled. However, if you want to keep the insurance, you have the option of reactivating your expired coverage. but, when the grace period expires, the re-activation procedure must be performed within a particular time frame. This is referred to as a revival period.
- Insurance Claim: If the policyholder dies during the policy term, the nominee files a claim to collect the death benefit. This is referred to as the insurance claim.
- Surrender Value: If your policy term hasn't expired and you still want to cancel it, you surrender it. Your life insurance company will pay you a sum based on the conditions of your policy. It is best to confirm this while buying the insurance plan.
- Standard Risk: A individual applying for a life insurance policy who meets the physical, occupational, and other criteria on which regular premium rates are based.
- Underwriter: The person who evaluates an insurance application and determines if the applicant is accepted and at what premium amount is known as underwriter.
- Underwriting: The procedure through which a life insurance company assesses whether or not to accept a life insurance application, and if so, on what grounds, in order to charge the right premium.
- Tax Benefits: Section 10 (10D) of the Income Tax Act of 1961 provides that benefits given to the policyholder/nominee are tax-free.
Now that you are familiar with the important terms under life insurance, you can easily buy life insurance. The best way to buy life insurance is by going online. Buying life insurance online is simple, hassle-free, and a quick process. Also, you get lucrative offers from different insurance companies that will give you a comparison so that you get the best life insurance plan.