Life insurance customers face an obstacle: They have to cut through a thicket of Life Insurance Terms that has been used for decades by the insurance industry. For instance, a “accelerated death benefit” does not sound very enticing. But if you get quotes from life insurance, it is a good thing to ask for.
Confusing jargon also prevents people from knowing how to purchase life insurance, and thus may leave their families without a safety net for life insurance. There are approximately 19 million customers who want to purchase life insurance but can not find their way through the complex language.
Those who do buy life insurance don’t necessarily comprehend what they’ve purchased. The only way you’re going to know if it’s the right product is if you understand it.
Here are some must-know terms:
The policyholder is the one who suggests the life insurance purchase policy and charges the premium.The policyholder is the policy owner and he / she may or may not be life insurance.
The insured person is assured of life. Life guaranteed is the one the life insurance program is paid for to mitigate the possibility of premature death. The family’s breadwinner is mainly life-guaranteed.
The policyholder may or may not be life insurance. For example, a husband buys his wife a life insurance plan. Since the wife is a homemaker, the husband pays the fee, therefore the husband is the policyholder, and the wife is assured of life.
Sum assured (coverage)
The life insurance is supposed to provide the insured with a life cover.
When buying a life insurance contract, the financial risk that may occur due to the passing of the guaranteed life is usually selected as a life-cover. Technically ‘Sum Guaranteed’ is the term used for an amount the insurer decides to pay on the insured person’s death or on the occurrence of some other insured case.
Upon comparing policies online, when buying a life insurance plan, and in the policy text, you can come across the word ‘sum assured. The guaranteed sum is the amount the life insurance provider must pay to the applicant if the insured person dies during the duration of the policy
The ‘nominee’ is the person (legal heir) named by the policyholder to whom the insured amount and other benefits will be paid in the event of an unfortunate eventuality by the life insurance provider. The candidate may be the policyholder’s wife, infant, parents etc. The candidate must claim life insurance if the life insured dies during the term of the policy
“Policy tenure” is the term for which life insurance protection is offered by the company. Depending on the form of life insurance contract and the terms and conditions, the policy lifespan can be any period from 1 year to 100 years or the entire life. It is often referred to several times as a concept of policy or length of policy.
The policy term determines how long the insurer will have the coverage for the risk. In the case of life insurance plans, though, the life policy stays alive until the guaranteed moment life is gone.
Maturity age is the guaranteed age of life that the program begins or starts at. This is analogous to the duration of the program but a different way of telling how long the strategy will be in place. Basically the life insurance provider specifies the maximum age up front before the life insured receives the life insurance cover.
For example, you’re 30 years old, you’re opting for a term plan with 65 years of maturity. That ensures that the insurance will be extended until you’re 65 years old. This also ensures that a 30-year-old’s average insurance period is 35 years.
The premium is the rate you pay to retain a successful life insurance program and enjoy continuous coverage. If you are unable to pay the fee before the due date of payment and even during the grace period, then the policy ends.
There are different choices on how you can pay the premium – daily payment, limited payment term, single payment.
Premium payment term/mode/ frequency
You can pay the life insurance premium as per your convenience.
– Regular premium payment-You can pay the premium on a daily basis during the policy period, either monthly, quarterly, semi-annual or annually.
– Limited Premium payment – You can opt for a fixed period of time to pay the premiums. In this alternative, you pay for a certain pre-fixed number of years, not till the end of the policy term. For instance, 10 years, 15 years, 20 years etc.
– Single Premium Payment-You can also opt to pay the premium as a lump sum in one go for the entire length of the contract.
These are an extra paid-up feature that expands the coverage of the insurance policy for simple life. Riders are acquired at the time of purchase or on the anniversary of regulation. There are various types of riders which can be purchased along with the base package. The number and form of riders will however vary from insurer to insurer.
Plus, the terms and conditions that vary from one policy to the next. But here’s the rundown of several well-known riders that life insurance firms are selling.
- Accidental Death Benefit Rider
- Accidental Total and Permanent Disability Benefit Rider
- Critical illness Cover
- Hospital Cash
- Waiver of Premiums
Whenever you plan to purchase a life insurance plan or compare various insurance policies online, you can come across ‘Death Bonus’ very often.
The ‘Death Benefit is what life insurance provider charges to the candidate if the life insured dies during the lifetime of the policy. When you’re talking about whether the guaranteed total and the death benefit is the same, then don’t be confused. As the death benefit may be assured or even higher than that which may include driver compensation (if any) and/or other benefits.
Maturity benefit is the rate the life insurance provider charges when life insured completes the term of the policy. When the life insured completes the predefined number of years under the scheme, longevity insurance is compensated.
In terms of term plans there is no survival or maturity value. However, you can consider longevity advantage or the maturity advantage available under the program in other life insurance policies.
It is applicable to all existing acquired life insurance plans. Free-look period is a time frame within which one can wish to return the policy purchased.
If the terms and conditions are not compatible with you, you can return the policy during the Free-look span. The insurance provider will refund the remaining premium. This is after deducting the costs incurred for medical tests, stamp duty charges and other fees. IRDA states that the life insurance free-look period is 15 or 30 days following receipt of a policy statement.
If you couldn’t pay the renewal fee on time for your policy, the life insurance provider will give you an extension in the number of days after the due date of the fee payment. A ‘Grace Period’ could be 15 days for the monthly premium payment mode, and 30 days for the annual premium payment mode.
If the policyholder refuses to pay the premiums long before the grace period expires, policy gets lapsed.
When the policyholder wants to discontinue the contract before the age of maturity, the life insurance company charges the policyholder a sum, this is called Surrender Value.
But you need to read the terms and conditions clearly, whether a program gives any surrender interest or not. And if there is a meaning of defeat, how high would it be. Not all life insurance policies give interest for surrender
When the policyholder stops paying the premium after a defined period of time, insurance providers must provide the policyholder with an option to change his policy to a reduced pay- policy. The amount covered under this policy is reduced in proportion to the number of premiums charged. If any benefits are accrued in accordance with the insured sum, those benefits will now be applied to the reduced insured amount, which is the pay-up value.
If, even during the grace period, the policyholder does not pay the premium, then the policy lapses.
However, if the policyholder really wishes to pay, the insurance provider is offering an option to re-activate the policy that has lapsed. This must be achieved within a given time span after the grace period has expired. The specified time is known as a time of revival. The specified time is known as a time of revival. The life insurance firm must send the application to the Underwriters team to reinstate the policy lapsed
Underwriters assess the liability associated with the insurance. The risk assessment process begins before the insurance policy is released, and ends with the settlement of the claim. And with the consent of Underwriters, policy is released to the policyholder. And only after the Underwriter’s approval the client pays the applicant the claim value.
A tax benefit is an acceptable deduction or credit on a tax return. This is intended to minimize the burden on a taxpayer while usually promoting other forms of business. A tax benefit allows for some change which reduces the tax liability of a taxpayer.
Carefully read ‘Exclusions’ before you buy any life insurance. These are issues which are not protected by a life insurance policy, and against which the insurance provider does not pay any compensation if asserted.
Suicide, for example, is an omission on every life insurance package.
In the event that the life insured passes during the term of the policy, the candidate must lodge a claim for the death benefit as stated in the policy.