Life insurance is the most heard policy that everyone knows about. With the features and benefits, it holds, every individual needs to take one for their future. However, there are different types of life insurance policies available in the market, and all of them differ in features and benefits. But the basic terminology and language remain the same.
Let us take you to the most used terms that you should be aware of while purchasing a life insurance policy for family's security:
21 Terms You should Know Before Buying a Life Insurance Policy
A policyholder is the owner of the policy, one who buys the policy and pays the premium. He/she may or may not be the life assured.
It is the amount that the policyholder pays to keep the insurance plan active if you are unable to pay the premium till the due date, and even in the grace period, for some reason, the policy lapses.
3. Grace Period:
It is the extended period that the insurance company gives you to pay the premium. The grace period is between 24 to 30 days.
4. Revival Period:
Suppose the policyholder fails to pay the premium even during the grace period but still wants to continue. In that case, the insurance company provides an option to re-activate the lapsed policy in a specific period known as the revival period.
5. Life Assured:
Life Assured is the person for whom the plan is purchased. He may or may not be the policy buyer. He is the insured person who gets the insurance plan to cover the risk of death.
6. Sum Assured/Coverage:
It is the term used for the amount that the insurance company agrees to pay to the Nominee on the death of the insured person or occurrence of any other insured event. It is chosen by the policyholder while purchasing the plan.
He or she is the person who receives the insurance proceeds after the demise of the insured person during the policy tenure.
8. Policy Tenure/ Term:
It is the duration of the plan for which the insurance company provides coverage. It is defined and mentioned in the individual insurer product brochure. Life Assured will have the flexibility to curate life insurance plans for themselves as per their standard.
9. Premium Payment Term:
Life Insurance companies provide the proposer with the flexibility to choose the premium payment term as per their desire and financial capability. It is the duration for which a user pays to avail of the coverage period. Premium Payment term is always equal to or less than the Policy term. Premium Pay Term is of different types like – Single Pay, Limited Pay (5 years, 7 years, 10 years, Pay till you retire), and Regular Pay (Equal to Policy Term).
10. Maturity Age:
This refers to the Age of the life assured at which the policy terminates. For example, if you purchase the plan at 40, with a maturity age of 70, you will get the policy coverage until you are 70 years old. Here, the maximum Age is the maturity age, and the policy tenure is 30 years. Life Assured's Age at entry + Policy Term (in years) = Age at which policy matures.
It is the term used for the additional features to the basic life insurance policy. These are paid and can be bought along with the policy or on the policy anniversary. The features range from insurer to insurer but the most commonly offered by all insurers are - accidental death benefit rider, hospital cash, critical illness cover, the return of premium, choice of selecting death benefit payout, etc.
12. Death Benefit:
This is the benefit, the amount of sum that insurance company gives to the Nominee in case the life assured dies during the policy tenure. This is different from the sum assured as death benefits can differ from the sum assured. It may include rider benefits or some accrued bonus.
13. Survival /Maturity Benefit:
This is the amount that the insurance company gives to the life assured if he outlives the policy tenure.
14. Free-Look Period:
This is a trial period that may range from 15 to 30 days that is applicable to all the purchased policies. During this period, the policyholder may choose to return the purchased policy. The insurance company will refund the premium after deducting the expenses incurred during the purchase.
15. Surrender Value:
This refers to the insurance company's amount if the policyholder decides to discontinue the plan before maturity age. Not all the life insurance policy comes with a surrender value. It is mentioned in the terms and conditions of the plan.
Read them carefully while purchasing the policy plan as these things are not covered under the life insurance policy you are going to buy. During claims, any information that remains hidden or not within the policy guidelines, then the insurance company has the right to reject the claims.
17. Claim Process:
The Nominee needs to file a claim to receive the death benefits if the life assured passes away. It is essential that life confirmed updates the Nominee when he has bought the life coverage. There have been many cases where Nominee is not aware that his/her close one has got a cover and is not able to get the claims from the insurer.
It refers to the person who reviews the insurance application and decides if it is acceptable and at what premium rate.
19. Vesting Age:
This is the term used in retirement policies. It refers to the Age at which the insured starts are receiving a pension from the insurance company.
This term refers to all the possible conditions that affect an insured's health, susceptibility to injury, and life expectancy.
21. Insurable Interest:
This means that the person who receives the policy benefits must necessarily suffer an emotional or financial loss if an unforeseen or untouched event occurs. Without insurable interest, an insurance contract stands invalid.