Important Term Insurance Terminologies Explained
A life insurance plan assures your family’s financial security in the event of your passing away. It is, after all, a crucial aspect of financial planning. Term life insurance is one of the popular life insurance policies available today.
One of the simplest and most affordable insurance plans is term life insurance. Despite this, most people find the intricate jargon and technical terms in insurance policy contracts needing to be more manageable. It is critical to be aware of such terms to make an informed choice when purchasing a policy. A glossary of some of the terms used frequently in term life insurance policies is provided below.
The person who owns the policy is also called the policy owner. The person who purchases the term insurance and pays the regular premiums is the policyholder.
2. Life assured
This term describes the person who is the subject of the insurance policy. The policyholder may or may not be the same as this. For instance, you would be the policyholder and the life assured if you purchased insurance. However, if you purchase insurance for your parents and make their monthly premium payments, you will be the policyholder, and your parents will be the life assured.
If the life assured passes away during the policy’s term, the nominee, also known as the beneficiary, will inherit the sum assured. It is typically a family member or close relative that the policyholder selects.
4. Sum assured
It is the amount paid to the nominee upon passing away of the life the insurance company assures. For example, let’s say you purchase a life insurance plan for yourself and name your wife as the beneficiary. You’ll need to decide on a sum assured when making the purchase. Let’s assume that the amount promised is 1 crore. The insurance company will now pay your wife the sum assured of Rs. 1 crore in the unfortunate event of your passing while the policy is in effect. The term “cover” is occasionally used to refer to the sum assured.
5. Policy term
It is the duration of the insurance policy’s validity or active status. This time frame can vary from one policy to the next and can be anything from a year to a lifetime. Let’s say that an insurance policy has a 50-year policy term. The insurance company will now be responsible for paying the sum assured to the nominee if the life assured for the policy passes away during this time. Both policy tenure and policy duration are other names for this.
The policyholder pays a set sum to the insurance provider in exchange for term insurance. You have various payment options: monthly, quarterly, yearly, etc. An important component of an insurance policy is the premium.
7. Payment Term/Mode
The various methods by which you can pay the insurance company’s premium are referred to as the payment term or mode. Three main categories of payment methods exist:
Regular pay: The policyholder pays premiums using this method for the duration of the policy.
Limited pay: Under this arrangement, the policyholder may select a specific time frame for the premium payment.
Single pay: In this procedure, the policyholder pays the premium simultaneously. Typically, this is paid when the insurance policy is bought.
Regardless of your payout method, you can calculate the premium using the term insurance calculator.
8. Death benefit
The death benefit is the total sum the insurer pays to the nominee in case the policyholder passes away during the policy term. Typically, this equates to the sum assured. However, the death benefit may also be greater than the sum assured in insurance policies that include riders.
9. Maturity benefit
Some policies pay the policyholder should they live past the policy’s term. This payment is called the maturity benefit.
Riders are supplemental coverage options for your current term life insurance policy. Benefits like an accelerated critical illness pack or an accidental passing away benefit pack are examples of what they can be. Check your premium using a term insurance calculator, but account for the riders in your final calculation.
The insurance company does not pay the nominee directly with the sum assured if the life assured passes away during the policy’s term. Before receiving the coverage, you must submit a claim to the company.
12. Free look period
An insurance policy typically has a free look period, during which you can cancel the coverage without incurring any fees.