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New to buying Life Insurance? Confused about all the different terms stated in your policy document? We’re here to help you understand the basic terminologies of Life Insurance to help you become an empowered policyholder.
While Life Insurance is truly for everyone, the terminology of Life Insurance really isn’t. This is because the policy document of Life Insurance contains certain terms and concepts that are not comprehensible to all. The result: the policyholder may remain either completely or somewhat ignorant of the actual meaning of terms that his/her policy entails. To avoid such a situation and to help empower the policyholder to stay informed and up to date with the times, we present here a Life Insurance terminology list containing at least 18 commonly used terms in everyday insurance lingo. Read the blog to upgrade your knowledge of the Life Insurance terminology glossary.
Life Insurance Terminology and Definitions
If you’re new to buying Life Insurance and wish to update yourself with the various terms and concepts mentioned in the policy document, here’s your chance. Here are 18 such terminologies defined, which are commonly seen in a Life Insurance policy document:
- Sum Assured: It refers to the amount of money payable by the insurance company in the unfortunate event of death of the insured. This amount is paid by the insurer to the nominee chosen by the insured during the latter’s lifetime. In case of death of the insured during the term of the policy, the sum assured chosen by the insured at the time of buying the policy.
- Death Benefit: A Life Insurance policy will entail this term quite commonly. A death benefit is a monetary benefit granted by the insurer to the chosen nominee or beneficiary of the insured in the event of the latter’s death. However, note that death benefit and sum assured are not the same. The death benefit can either be equal to the sum assured or an amount greater, including other benefits such as riders.
- Free-Look Period: This is granted by the insurer at the time of buying a new Life Insurance policy. It refers to a certain time period (generally 15-30 days) granted to the policyholder to thoroughly review the terms and conditions of the policy purchased. If they are dissatisfied with the T&C, they can choose to cancel and return the policy within the Free-Look Period.
- Exclusions: They refer to certain provisions that are not covered in the Life Insurance policy and hence cannot be claimed from the insurer. It is important to read the Exclusions section carefully in the policy document before buying.
- Grace Period: It is a time extension offered by the insurer in case the policyholder fails to pay the premium on time by the due date. This is generally 15 days after the due date of paying the premium in case of monthly premium payment mode and 30 days in case premium is paid yearly.
- Claim: This can be made by the nominee of the life assured to the insurance company in case the life assured passes away during the term of Life Insurance policy. A death benefit can be claimed by the beneficiary from the insurance company in this case.
- Age of Maturity: This refers to the age of the life assured when the Life Insurance policy would terminate or how long it would continue for. In other words, the insurer would clearly state the maturity age in the policy document for the insured to know how long the company would provide them the benefit of insurance coverage for.
- Life Assured: This is the same as the person insured in the Life Insurance policy. The plan is purchased in the name of the life assured to seek Life Insurance coverage for the nominee in the event of their untimely and unfortunate demise.
- Note: The policyholder of the Life Insurance policy document may or may not always be the life assured. For example, if the policy is purchased in the name of the wife, the husband may be paying the premium towards the plan since the wife is a homemaker. In this case, the husband is the policyholder and the wife is the life assured.
- Nominee: This refers to the legal heir chosen or nominated by the policyholder during their lifetime to be given death benefit by the insurance company in case of the death of the insured during the term of the policy. The policyholder may choose the spouse, children, or parents as their nominee.
- Premium: The most common term used in every insurance plan and a Life Insurance policy is no different. It refers to the amount of money that the policyholder needs to pay to the insurer for the maintenance of the policy in order to continue enjoying its coverage benefits. Premiums can be made in different modes – monthly, quarterly, semi-annually, and annually.
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Some Other Commonly Used Terms in Life Insurance Plans
There are many more terms used in everyday parlance in Life Insurance policy documents. Here we list some more for your better understanding:
|S. No.||Life Insurance Policy Terminology||Definition and Meaning|
|11.||Policyholder||The proposer or buyer of Life Insurance who pays the premum for the plan|
|12.||Policy Tenure||The term of the plan for which the insurance company would provide coverage to the insured (generally during a time frame of 1-100 years)|
|13.||Rider||Add-on benefits that enhance the coverage scope of the Life Insurance plan on payment of extra premium; examples – Critical Illness Rider. Accidental Death Rider|
|14.||Survival/Maturity Benefit||The amount of money paid by the insurer to the life assured when the latter has survived or outlived the term of the policy|
|15.||Surrender Value||The amount paid by the insurer to the policyholder in case the latter wishes to discontinue the policy before the maturity age|
|16.||Revival Period||A specifed time period granted by the insurer to the policyholder to revive the policy after it relapses. The policy relapses on account of failure of premium payment even during the grace period.|
|17.||Tax Benefits||Tax deductions granted under Section 80 (C) of the Income Tax Act, 1961 for premiums paid towards the policy; benefits paid out by the insurer to the policyholder and/or nominee are free of tax as per Section 10 (10D) of the ITA|
|18.||Underwriter||A person appointed by the insurance company to assess the risk element involved in granting Life Insurance to a prospect policyholder; policy is issued only upon approval from the Underwriters|
Read More: What is an Incremental Term Life Insurance Policy?
There are many more terminologies used in Life Insurance policy documents; however, we have been able to entail only 18 most commonly used ones in this blog. We hope that this blog helps improve your understanding of the everyday terms used in Life Insurance plans and help you make an informed decision when buying one. For more information on the best Life Insurance plans in India, visit PayBima.
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FAQs on Life Insurance Terminologies
What is terminology in Life Insurance?
Terminology refers to the common words used in Life Insurance policy documents that often seem complex and difficult-to-understand by the policyholder.
What is the terminology used in insurance to disclose facts?
Disclosure is the term used to reveal complete and accurate facts with regard to an insurance policy. It is the responsibility of both the parties involved – the insurer and the insurer – to disclose full facts to one another.
Why we use terminology in our daily life?
Terminology is used to help better understand certain concepts and to also make a non-expert learn about those concepts in a simple and easily understandable manner.