Top 10 Life Insurance Terms You Should Know About

Emergencies are unpredictable and take place suddenly. As it is unpredictable, there is no way you can be prepared to handle the impact of an emergency. Not only is there a mental and physical toll to an emergency, but there’s also the financial toll to it. Especially if something unfortunate were to happen to you and your family is entirely dependent on you. 

To ensure their financial stability in your absence, you must invest in life insurance. There are different life insurance plans that you can select from, either online or offline. Before you select a plan, there are some terms related to the policy which you should know. Keep reading to know about such terms which might help you in reducing your confusion about them.

What is life insurance?

A life insurance policy is a type of policy in which you, as a policyholder, get into an agreement with your insurer. As per this agreement, the insurer will financially compensate your family in the event of your untimely demise during the term of your plan. As there are different life insurance plans, the sum assured, and duration plan may vary depending on the plan you go for. This amount can be used by your family to manage expenses and build a financially secure future for themselves.

Which policy terms should you know?

Listed below are 10 insurance policy terms that everyone should know about:

Top 10 Life Insurance Terms You Should Know About

1.  Sum assured

Sum assured is the amount that the insurer agrees to pay to the beneficiaries of the policyholder if they were to pass away during the policy’s term. For example, Sunil purchased term insurance with a duration of 30 years and a sum assured value of Rs.60 Lakhs. 10 years after purchasing the policy, Sunil got diagnosed with blood cancer and passed away due to its complications. As Sunil passed away during the term of the policy, the insurer paid his family the sum assured amount of Rs.60 Lakhs. This amount will help Sunil’s family to remain financially stable in the foreseeable future. Do keep in mind that the amount of the sum assured depends on the policy you purchase. 

2.  Maturity benefits

Maturity benefit, also known as survival benefit, is the amount that the policyholder gets if they were to survive the term of the policy. Maturity benefits are given in life insurance policies such as ULIP and endowment plans. Maturity benefit is not offered in a term plan as it only offers a sum assured in the form of a death benefit. If you were to invest in a ULIP and survive the termination of the plan, you will be entitled to receive maturity benefits. 

3.  Tenure 

The tenure of the policy is the duration of your plan. Different policies have different durations. Term plans come with a duration of 5-20 years and can be extended up to 30 years. Whole-life plans offer coverage for as long as the policyholder is alive. The range ends with the passing of the policyholder. Other life insurance policies such as ULIPs and endowment plans also have different durations as per the requirement of the investor.

4.  Nominee

The nominee is the person nominated by the policyholder who is eligible to receive the sum assured and additional bonuses if any after the policyholder passes away. The nominee is named by the policyholder at the time of the purchase of the policy. A nominee could be either the insured’s partner, parent, child, sibling, or relative.

5.  Premium

The amount that you pay towards the policy to keep it functional and to enjoy its benefits is called a premium. The premium amount is decided at the time of the purchase of your plan. When it comes to premium payment, such as term insurance premium payment, you can make regular payments, i.e., monthly, half-yearly, or yearly. You can also one-time lump sum premium payment. Some plans, such as the return of premium term plan, repay the premium to the policyholder as a maturity benefit after the policy expires.

6.  Riders

Riders, also known as add-ons, are additional components that you can include in your life insurance policy benefits to get additional coverage. Riders such as accidental death benefits, disability benefits, and critical illness benefits offer specific coverage to the policyholder. Do keep in mind that riders increase the cost of your policy. Include only those riders which you deem necessary.

7.  Free look period

The period during which you can cancel your policy after its purchase is known as the free look period. After you have purchased your policy, you will receive the policy documents. However, if you do not feel satisfied with its terms and conditions or its coverage, you can cancel the policy during the free look period. This period begins after you receive the policy documents and is generally up to 15 days. 

8.  Grace period

If you cannot pay the premium of your policy, your insurer offers you an additional number of days to pay the premium after the due date has passed. These additional days are known as a grace period. If you wish to keep your policy operational, you are required to pay the premium during the grace period. If you fail to do so, your policy becomes lapsed.

9.  Surrender value

If you wish to surrender your plan midterm before its maturity, your insurer will pay you something known as a surrender value. However, not all life insurance policies offer this value. Do discuss this with your insurer before the purchase of the policy. If a surrender value is offered, ask about the value that will be offered and the charges that might get deducted from it.

10.  Claim

The process of claiming compensation from the insurer after the demise of the policyholder is known as the claim process. The claim is filed by the nominee of the policy. Once the claim is properly verified, the insurer will settle the claim and disburse the sum assured amount to the nominee.

Conclusion

These are some of the terms related to a life insurance policy that you should know. If you wish to invest in a policy, use the life insurance premium calculator to see how much the policy would cost based on your requirements.