Have you ever wondered about the specialised terminologies used in insurance policies? The world of insurance can be confusing, with complex terms like “Maturity Benefit” and “Grace Period” often preventing individuals from fully understanding their policies. To help you navigate through these terminologies, we have compiled a list of important life insurance terms and their explanations. So, let us decode the terminologies of insurance policies, be it a term insurance policy or any other policy.
Understanding the basics of insurance
At the outset, it is crucial to understand the basics of insurance so that you can choose the right one for you:
Policyholder and life-assured
The policyholder is the individual who purchases the life insurance policy and pays its premiums. It’s important to note that the policyholder may or may not be the life assured. The life assured is the person whose life is covered by the policy, and in case of any unfortunate event such as death, the nominee will receive the insurance coverage amount.
For example, when a husband buys an insurance policy for his wife, he becomes the policyholder while his wife becomes the life assured.
Premium and sum assured
The premium is the amount paid by the policyholder to keep the life insurance policy active. Failure to pay the premium within its due date or grace period can result in policy lapse. On the other hand, sum assured is the guaranteed amount that will be paid to the nominee in case of the unfortunate death of the life assured during the policy tenure.
For instance, if you choose a sum assured of ₹50 lakh and unfortunately pass away during your policy’s term, your nominee will receive ₹50 lakh as the death benefit.
Policy tenure and nominee
The policy tenure refers to the duration for which your life insurance policy provides coverage. The nominee, also known as a beneficiary, is a person nominated by you to receive the life insurance proceeds in case of an unfortunate eventuality. The nominee can be anyone, either from your family or outside, but it is essential to inform your insurance company about their appointment.
It’s important to remember that if your nominees are minors, you will have to appoint a guardian called an appointee to oversee the affairs of the claim and receive the proceeds on behalf of the minor nominee.
Lapsed policy and grace period
A policy can get terminated due to non-payment of the premium amount. If you fail to pay the premium even after the grace period, your policy will lapse. However, most life insurance companies offer a revival period within which you can revive the lapsed policy by paying the outstanding premiums.
The grace period is an extension given by the insurance company after the premium due date. If you pay the outstanding premium amount within this period, your policy coverage continues without any interruption.
Death benefit and maturity benefit
It is important to note that term insurance benefits are many. For example, the death benefit is the amount paid to the nominee in case of the death of the life assured during the policy period. It is important to note that the death benefit can be equal to or higher than the sum assured as it may include rider benefits as well. On the other hand, the maturity benefit is the amount paid to the policyholder upon completion of the policy tenure.
For example, if you have a term insurance policy with a death benefit of ₹1 crore and unfortunately pass away during its tenure, your nominee will receive ₹1 crore. However, if you survive till maturity, you will receive a maturity benefit as per your policy terms.
Free-look period and exclusions
The free-look period allows you to return your purchased policy within a specific time frame mentioned in your policy document if you are not comfortable with its terms and conditions. The premium will be refunded after deducting necessary charges.
Exclusions are certain situations or events that are not covered under a life insurance policy. For example, suicide is an exclusion in most policies. If the life assured commits suicide within a specified time period from the policy inception date or reinstatement, the claim may be void or only a limited amount may be paid.
Riders and surrender value
Riders are additional benefits that can be added to your basic life insurance plan to enhance its coverage. They offer extra protection against specific risks such as accidental disability or demise.
Surrender value refers to the amount that a life insurance company pays to the policyholder if they decide to discontinue the policy before its maturity.
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Types of insurance and their terms
Health insurance
Health insurance provides coverage for medical expenses and treatments. It is important to understand terms such as coverage, premium, exclusions, and claim process when choosing a health insurance plan.
Home insurance
Home insurance protects your house and belongings from damage and theft. Terms like coverage, deductible, and claim process are crucial to understand while purchasing home insurance.
Auto insurance
Auto insurance provides financial protection in case of accidents, theft, or vandalism involving your vehicle. Terms like coverage, premium, deductibles, and claims are important considerations when choosing auto insurance.
Life insurance
Life insurance offers financial protection to your loved ones in case of your unfortunate demise. Understanding terms like death benefit, nominee, premium, and policy tenure is essential when buying life insurance.
Travel insurance
Travel insurance covers expenses related to travel-related mishaps such as trip cancellation, lost baggage, or medical emergencies. Terms like coverage limits, exclusions, and claim process are important factors to consider while purchasing travel
insurance.
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Conclusion
Understanding essential insurance terms is crucial for every policyholder. By familiarizing yourself with these terms, you can make informed decisions and ensure that your coverage meets your needs. Whether it’s a term insurance policy or any other type of insurance, knowing the key terminologies and their implications will help you navigate the insurance landscape with confidence. As you continue on your financial journey, consider how these terms can impact your decision-making process. By leveraging the term insurance benefits and other types of coverage, you can build a secure future for yourself and your family.