20 Basic Life Insurance Terms and Concepts
Deciding to buy a life insurance policy is the first step in securing your family’s financial situation and future aspirations and goals in the face of an unfortunate event. The next step includes a thorough and detailed study of the features, terms and conditions of various life insurance policies to find the most suitable one to meet your needs. Read on to learn and understand some important terms that you should know before buying a life insurance policy.
Table of Contents
- 20 Basic Life Insurance Terms You Should Know About
- 1. Insurer
- 2. Policyholder
- 3. Life Assured
- 4. Coverage/Sum Assured
- 5. Nominee/Beneficiary
- 6. Underwriters
- 7. Policy Duration
- 8. Free Look Period
- 9. Premium
- 10. Grace Period
- 11. Lapsed Policy
- 12. Revival Period
- 13. Rider
- 14. Death Benefit
- 15. Maturity Benefit
- 16. Surrender Value
- 17. Paid-Up Value
- 18. Tax Benefits
- 19. Exclusions
- 20. Claim Process
- Endnotes
20 Basic Life Insurance Terms You Should Know About
Here are some terms that you will regularly come across while going through different life insurance plans.
1. Insurer
The insurer or insurance provider offers distinct life insurance policies to meet the unique requirements of different people.
2. Policyholder
The term is used for the person who buys the life insurance plan and pays the premium. Moreover, a policyholder is just the plan's owner and may or may not be the life assured.
3. Life Assured
The person who enjoys the life cover and protection provided by an insurance plan is the life assured.
(Note: The difference between a policyholder and life assured can be understood through the following example. Suppose a parent buys a life insurance policy for his child. In this case, the parent is the policyholder and the child in the life assured.)
4. Coverage/Sum Assured
The amount chosen by the policyholder at the policy inception to be paid to his/her loved ones in case of an unfortunate event is known as the sum assured. It can be calculated after the assessment of distinct needs of the individual’s family lifestyle and their future ambitions.
5. Nominee/Beneficiary
The person who receives the sum assured and other benefits after the death of the life assured within the policy duration is regarded as the nominee or the beneficiary. A wife, child, parent or anyone financially dependent on the life assured can be nominated to be the beneficiary.
6. Underwriters
The underwriters approve the issuance of the policy after proper risk evaluation. They are also responsible for clearing the claim request of the beneficiary after the life assured’s death.
7. Policy Duration
The period till which the life cover is provided is called the policy duration. It is decided at the policy inception and can range between 1 year to the entire life of the life insured, depending on the policy purchased.
8. Free Look Period
The duration within which the purchased policy can be returned is called the free look period. The policyholder can return the policy documents within 15-30 days of the purchase if he is not comfortable with the policy terms and conditions.
9. Premium
The premium refers to the amount paid to the insurer to keep the contract active and enjoy coverage continuation. The amount depends on many factors like the age of the life assured, his/her lifestyle habits, the type of the chosen policy and the decided sum assured and tenure of the policy.
10. Grace Period
The extra time given to the policyholder to pay the due premium is called the grace period. The period can be 15 days for the monthly payable premium and 30 days for the annual payable premium.
11. Lapsed Policy
If the policyholder fails to pay the premium amount within the due period and the grace period, the policy is terminated.
12. Revival Period
If the policyholder wishes to renew the lapsed policy by paying the pending premium, he can do it within a specific period after the grace period’s end.
13. Rider
The additional benefits on the standard life insurance policy are referred to as riders. They can be purchased at the policy inception or anniversaries. Some of the rider options that every insurer provides are critical illness cover, accidental death benefit rider, waiver of premiums etc.
14. Death Benefit
The amount paid to the beneficiary after the life assured’s death is regarded as death benefits. These might include the sum assured and additional rider benefits, depending on the policy.
15. Maturity Benefit
The maturity benefit refers to the amount paid if the life assured outlives the policy term. However, these are not applicable in term life insurance policies.
16. Surrender Value
It refers to the amount paid by the insurer if the policyholder wishes to discontinue his/her life insurance plan. The value depends on the policy terms and conditions. Moreover, some plans do not offer surrender value altogether.
17. Paid-Up Value
It refers to the amount paid by the insurer if the policyholder wishes to discontinue the policy after a specific duration. The sum assured is decreased in proportion to the number of paid premium instalments.
18. Tax Benefits
Life insurance policies provide tax benefits on the payable premium and tax exemptions on death benefits received by the beneficiary under Section 80C and Section 10(10D) of the Income Tax Act, respectively.
19. Exclusions
Policy exclusions include death situations like suicide, childbirth or death during a war or a terrorist attack when the insurer does not provide death benefits to the beneficiary.
20. Claim Process
The beneficiary has to file a claim with the insurance provider to receive the death benefits if the life assured dies within the policy tenure.
Endnotes
These are the 20 terms you should know about before purchasing the most suitable life insurance policy for your family. You can even consult an insurance agent or a financial advisor to make a more informed financial decision.
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