Life Insurance Terminologies Every Insured Must Know
Published On Mar 04, 2021 12:00 AM By Shrida Gulati
Table of Contents
- List of Common Life Insurance Terminologies
- 1. Policyholder
- 2. Life Assured
- 3. Sum Assured
- 4. Premium
- 5. Nominee
- 6. Assignee
- 7. Policy Tenure
- 8. Maturity Age
- 9. Premium Payment Mode/Frequency/Term
- 10. Riders
- 11. Death Benefit
- 12. Maturity Benefit
- 13. Free Look Period
- 14. Grace Period
- 15. Surrender Value
- 16. Paid-up Value
- 17. Revival
- 18. Exclusions
- 19. Underwriters
- 20. Tax Benefits
Life insurance terminologies are brought up repeatedly while purchasing or looking for a suitable plan. A potential buyer who does not have proper knowledge or information about it may find it confusing, but actually these terminologies are not that tricky to understand. Before purchasing the life insurance policy it is essential to understand these terminologies to ensure you make an informed decision.
List of Common Life Insurance Terminologies
Below discussed are some of the commonly used terminologies that will help you have better understanding about your life insurance policy.
Policyholder is the person who applies for the insurance policy and purchases it. He/she is responsible to pay the premiums of the life insurance policy. The policyholder can be or cannot be the life assured under the purchased life insurance policy.
2. Life Assured
Life Assured is the person who is insured under the life insurance policy. He/she is considered the sole breadwinner of his/her family. Life assured can be or cannot be the policyholder. Life assured does not have to be the policyholder necessarily. The policyholder can purchase the life insurance policy for someone else making the other person the life assured.
3. Sum Assured
Sum Assured is the decided amount that the insurance provider agrees to pay in the event of demise of life assured. Sum is the total coverage amount under which the life assured is covered. The policyholder decides the sum assured amount while purchasing the life insurance policy.
Premiums are the pre-decided amount that the policyholder pays to the insurance provider in exchange of life cover. Premiums are paid to keep the life insurance policy in force and to be able to keep enjoying the benefits under the policy. If you do not pay premiums in the due date time period the life insurance policy terminates.
Also Read:- Advantages of Purchasing Term Insurance Plans Online
Nominee is the person who receives the sum assured or any type of other benefits of the life assured in case of an unforeseen event. The policyholder is entitled to make nomination any time during the policy tenure for payments of benefits under the policy at the time of unforseen demise of the policyholder. Nomination can be made by endorsement on the policy or by giving in written to the insurance company. Nomination is permitted under section 39 of Insurance Act, 1938.
Assignee is the person to whom the insurance policy is assigned by the policyholder. Assignment of the policy is allowed under section 38 of Insurance Act, 1938. Assignment of the policy can be made by an endorsement on the insurance policy.
7. Policy Tenure
Policy Tenure is time period or the duration of the coverage provided under the life insurance policy. Policy tenure is different in every life insurance plan, but for whole life insurance the policy tenure ends when the life assured passes away.
8. Maturity Age
Maturity age denotes the age of the life assured at the time the life insurance policy terminates. Basically this denotes how long the policy will be active for.
9. Premium Payment Mode/Frequency/Term
The policyholder can pay the premium as per his/her convenience. The policyholder can choose to pay their premium for a decided time period. The policyholder can also choose to pay throughout the entire by making regular premium payments monthly, quarterly, half yearly or yearly.
Riders are additional benefits which an insurance company offers at the time of purchasing the life insurance plan, they are purchased with the plan increasing the premium and they enhance the life cover as well. Some of the common riders offered by the insurance companies are Critical Illness Rider, Accidental Death Benefit Rider, Accidental Total or Permanent Disability Rider and Waiver of Premium Rider. With these optional additional riders being offered a person can make better decisions by choosing the best plan and rider offered with it.
11. Death Benefit
Death benefit is the one of the most common terms used when the potential buyer is planning to purchase a life insurance policy. Death Benefit is the amount paid to the nominee if the life assured passes away during the policy tenure. Sum Assured and Death Benefit are not exactly the same, death benefit can be the exact amount of sum assured or may include any rider benefit.
12. Maturity Benefit
Maturity benefit is the amount paid to life assured if he/she survives the entire life insurance policy tenure. Maturity Benefit is different from survival benefit, survival benefit is the amount payable to the life assured in case he/she survives the predetermined time period under the life insurance policy. Term insurance does not include maturity/survival benefits.
13. Free Look Period
Free look period of 15 days offered where the policyholder has an option to review the policy. The policyholder can cancel the policy if they are not satisfied with the terms and conditions of the provided policy. The policyholder needs to provide appropriate reasons for cancelling the insurance policy within 15 days from receiving the policy documents. On cancellation of the policy during the free look period, the insurance provider will return the premium paid with following deductions: a) Expenses incurred by the company on medical examination and b) Proportionate risk premium for the period of policy cover.
14. Grace Period
Under the Section 45 of the Insurance Act, the age/gender of the policyholder is acknowledged on the basis of age/gender mentioned in the proposal of the issued insurance policy. If the policyholder’s age exceeds from the given age the insurance company can ask for premiums as per the sum assured that qualifies his potential and if the policyholder’s age is less than that of mentioned then if the premiums paid are higher than the potential of the policyholder, the premiums will be refunded without deducting anything.
15. Surrender Value
If the policyholder in any case decides to quit/discontinue the current life insurance policy, then the insurance provider is entitled to pay a amount called surrender value.
16. Paid-up Value
If the policyholder decides to discontinue paying the premium after a time period, then the insurance provider offers the policyholder an option to convert the policy into a reduced paid up policy. This option reduces the sum insured and the number of premiums payable as well.
If the life insurance policy lapses on account of non-payment of regular premiums. The policyholder is entitled to policy revival in the offered revival period. The policyholder can apply for revival of the life insurance policy within the time period provided from the first due date of unpaid regular premium. The policy shall be revived after paying the balance premiums with applicable taxes and current rate of interest.
Exclusions are considered the things which are covered under the life insurance policy. The policyholder/life assured must go through the terms and conditions to know about the exclusions.
Underwriters are the one responsible for evaluating the risk involved in insurance. Risk evaluation starts before the life insurance policy is issued and ends at the time of claim settlement. Underwriters approve issuance of the life insurance policy and they are also responsible for approving the claim.
20. Tax Benefits
Taxes are applicable on all the premiums paid/to be paid and that will solely be borne by the policyholder itself. The insurance company reserves the right to claim the taxes applied on the policy from the policyholder. Life insurance premiums qualify for tax deduction under Section 80C of the Income Tax Act and as per Section 10D.
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