Insurance

life insurance terms and concepts

Let us understand some commonly used terms in Life Insurance:

  • Life Assured: It is the person who is covered under the insurance policy
  • Proposer: It is the person who pays the premiums of the policy. For example: If you have bought the policy for yourself, then you are both the Life Assured as well as the Proposer. Similarly, if you purchase an insurance policy for a family member, then you are the proposer and the family member is the Life Assured.
  • Nominee or Beneficiary: It is the person you appoint at the time of buying the policy to receive the benefits of your insurance policy, in your absence.
  • Insurer: The insurance company that sells the life insurance policy is called the Insurer (for example, ICICI Prudential Life Insurance).
  • Life Cover: It is the amount that the Insurer will pay to your Nominee in case of an unfortunate event.
  • Maturity Benefit: For Protection + Savings policies, the Insurer pays a certain lump sum of money on completion of the policy term. This amount is known as the Maturity Amount.
  • Premium: A premium is the amount you pay to the insurer for receiving the benefits of the insurance policy. These payments can be made on a regular basis throughout the policy duration, for a limited number of years or just once, as per the options available under the policy you choose.
  • Premium Payment Term: The number of years for which you pay the premiums is known as the Premium Payment Term.
  • Policy Term: The number of years for which the Life Cover continues.

यह भी पढ़े :Comprehensive Insurance Means

. Policyholder:

The policyholder is the one who proposes the purchase of the life insurance policy and pays the premium (see #7 Premium). The policyholder is the owner of the policy and s/he may or may not be the life assured (see # 2 Life assured).

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2. Life assured:

Life assured is the insured person. Life assured is the one for whom the life insurance plan is purchased to cover the risk of untimely death. Primarily, the breadwinner of the family is the life assured.

Life assured may or may not be the policyholder. For instance, a husband buys a life insurance plan for his wife. As the wife is a homemaker, husband pays the premium, thus the husband is the policyholder, and wife is the life assured.

3. Sum assured (coverage):

Life insurance is meant to provide a life cover to the insured.

The financial loss that may arise due to the passing away of the life assured is generally chosen as a life cover when buying a life insurance plan. In technical terms, ‘Sum Assured’ is the term used for an amount that the insurer agrees to pay on death of the insured person or occurrence of any other insured event.

You may come across the term ‘sum assured’ at the time of comparing policies online, whenbuying life insurance plan, and in the policy document. The sum assured is the amount that the life insurance company will pay to the nominee (see #4 Nominee) if the insured person dies during the policy tenure (see #5 Policy tenure).

The sum assured is chosen by the policyholder at the time of purchase. To know more and to choose the right coverage, read this.

4. Nominee:

The ‘nominee’ is the person (legal heir) nominated by the policyholder to whom the sum assured and other benefits will be paid by the life insurance company in case of an unfortunate eventuality. The nominee could be the wife, child, parents, etc. of the policyholder. The nominee needs to claim life insurance, if the life assured dies during the policy tenure (see #5 Policy tenure).

5. Policy tenure:

The ‘policy tenure’ is the duration for which the policy provides life insurance coverage. The policy tenure can be any period ranging from 1 year to 100 years or whole life, depending on thetypes of life insurance planand its terms and conditions. Many a times, it is also referred to as policy term or policy duration.

The policy tenure decides for how long the company is providing the risk coverage. However, in the case ofwhole life insurance plans, the life coverage is till the time life assured is alive.

6. Maturity age:

Maturity age is the age of the life assured at which the policy ends or terminates. This is similar to policy tenure, but a different way to say how long the plan will be in force. Basically, the life insurance company declares up front the maximum age till which the life insurance coverage will be provided to the life insured. For instance, you are 30 years old, you opt for a term plan with a maturity age of 65 years. That means the policy will have a coverage till you are 65 years old, which also means, the maximum policy tenure for a 30-year-old is 35 years.

7. Premium:

The premium is the amount you pay to keep the life insurance plan active and enjoy continued coverage. If you are unable to pay the premium before the payment due date and even during the grace period (#13 Grace period), the policy terminates.

There are various options on how you can pay the premium – regular payment, limited payment term, single payment (discussed below #8 Premium payment mode).

8. Premium payment term/mode/ frequency:

You can pay the life insurance premium as per your convenience.

Regular Premium Payment– You can pay premium regularly throughout the policy term either – monthly, quarterly, half-yearly or yearly.Limited Premium Payment– You can choose to pay the premiums for a limited amount of time. In this option, you do not pay till the end of the policy term, but for a certain pre-fixed number of years. For example, 10 years, 15 years, 20 years, and so on.

Single Premium Payment – You can also choose to pay the premium for the entire duration of the plan as a lumpsum in one single go.

9. Riders:

Riders are an additional paid-up feature to widen up the scope of the base life insurance policy. Riders are bought at the time of purchase or on policy anniversary. There are different types of riders that can be bought along with the base plan. However, number and type of riders will differ from insurer to insurer.

Plus, the terms and conditions may differ from one insurance to another. However, here’s the list of some well-known riders offered by life insurance companies.

  • Accidental Death Benefit Rider
  • Accidental Total and Permanent Disability Benefit Rider
  • Critical illness Cover
  • Hospital Cash
  • Waiver of Premiums

For more in-depth guide read – life insurance riders and how to choose one.

10. Death Benefit:

You will come across ‘Death Benefit’ quite frequently whenever you are either planning to buy a life insurance plan or comparing different insurance plans online.

The ‘Death Benefit’ is what life insurance company pays to the nominee in case the life assured dies during the policy tenure. If you are thinking whether the sum assured and death benefit are one and the same, then do not be confused. Because the death benefit can be sum assured or even higher than that, which may include rider benefit (if any), and/or other benefits. Except in the case of term insurance – where there is no accrued bonus or guaranteed additions.

11. Survival/Maturity Benefit:

Maturity benefit is the amount that the life insurance company pays when the life assured outlives the policy tenure. Survival benefit is paid when the life assured completes the pre-defined number of years under the policy.

There is no survival or maturity benefit in term plans. However, in other life insurance policies you may find survival benefit or the maturity benefit paid under the plan.

12. Free-look Period:

It is applicable to all new life insurance policies purchased. Free-look period is a time frame during which one may choose to return the purchased policy.

If you are not comfortable with the terms and conditions, you can return the policy within the Free-look period. The insurance company after deducting the expenses incurred on medical examination, stamp duty charges and other charges will refund the remaining premium. IRDA specifies free-look period in life insurance is 15 or 30 days after receiving the policy document.

13. Grace Period:

If you couldn’t pay the renewal premium for your policy on time, life insurance company gives you an extension in the number of days after the premium payment due date. A ‘Grace Period’ can be period of 15 days in case of monthly premium payment mode, and 30 days in case of annual premium payment mode.

If the policyholder does not pay the premiums even before the end of grace period, the policy gets lapsed.

14. Surrender Value:

If the policyholder decides to discontinue the plan before the maturity age, the life insurance company pays an amount to the policyholder, this is called Surrender Value.

But you must clearly read the terms and conditions whether a plan offers any surrender value or not. And if there is a surrender value, how much it will be. Not all life insurance plans have surrender value.

15. Paid-up Value:

In case the policyholder discontinues to pay the premium after a specified period of time, Insurance companies will offer the policyholder an option to convert his policy into a reduced paid-up policy. Under this option the sum insured is reduced in proportion to the number of premiums paid. If other benefits related to the sum insured are payable, these benefits will now be related to the reduced sum insured, which is the paid-up value.

16. Revival Period:

If the policyholder does not pay the premium even during the grace period, the policy lapses.

However, if the policyholder still wants to continue, the insurance company provides an option of re-activating the lapsed policy. This must be done within a specific period of time after the grace period ends. This specified period is known as a revival period. To reinstate the lapsed policy, the life insurance company will put forward the request to the team of Underwriters (see #17 Underwriters) for approval.

17. Underwriters:

Underwriters evaluate the risk involved in insurance. The process of risk evaluation starts before the issuance of insurance policy, and ends with settlement of the claim (see #20 Claim Process).

Only with the approval of Underwriters, policy is issued to the policyholder. And only after clearance from the Underwriter, the company pays the claim benefit to the nominee.

18. Tax benefits:

All the premiums paid towards the life insurance plan are eligible for deductions under Section 80 (C) of Income Tax Act, 1961. The maximum amount that one can claim as deductible is Rs.1.5 lakh.

The benefits paid to the policyholder/nominee are tax-free under Section 10 (10D) of Income Tax Act, 1961.

19. Exclusions:

Before you buy any life insurance, read ‘Exclusions’ carefully. These are things that are not covered under a life insurance policy, and against which if claimed, insurance company wouldn’t pay any benefit.

For instance, Suicide, is an exclusion in any life insurance plan.

20. Claim Process:

In case, the life assured passes away during the policy tenure, the nominee needs to lodge a claim to receive the death benefit as mentioned in the policy.

Read: How to File a Death Claim Under a Life Insurance Policy?

Life Insurance Terminologies – Over to you:

I hope this simple basic life insurance terminology guide will help you to simplify your understanding of insurance.

Got queries? Ask us in the comments section.

  • Policyholder

    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.

  • 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.

  • Premium

    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

    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.

  • 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.

  • Nominee

    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.

  • Lapsed Policy

    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.

  • Grace Period

    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.

  • Death Benefit

    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

    Maturity benefit is the amount paid to the policyholder upon completion of the policy tenure.

  • Free-look Period

    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.

  • Exclusions

    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.

  • Revival Period

    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.

  • Claim process

    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.

  • Rider

    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!

nandeshkatenga

लेखक एक Computer Engineer हैं, और 2016 से AePS के क्षेत्र में रिटेलर, डिस्ट्रीब्यूटर, सुपर डिस्ट्रीब्यूटर के रूप में काम कर रहे है। टेक्निकल, मार्केटिंग, प्रोग्रामिंग आदि सम्बंधित ब्लॉग लिखना भी पसंद करते है। आप उनसे [email protected] और +919834754391 (व्हाट्सप्प) पर संपर्क कर सकते हैं।

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