Important Term Insurance Terminology Explained

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insurance is a safety net that ensures your family’s financial security in the event of your death. It is, after all, an important aspect of financial planning. There are various types of life insurance policies available today, the most popular of which being term life insurance.
Term life insurance is one of the most basic and cost-effective types of insurance. The intricate jargon and technical terms used in insurance policy contracts, however, overwhelm the majority of individuals. It is critical to be aware of such terminology in order to make an informed selection when purchasing a coverage. A glossary of some of the most regularly used terms in term life insurance policies is provided below.
1. Policyholder: This is the person who owns the policy, also known as the policy owner. The policyholder is the one who purchases the insurance and pays the premiums on a regular basis.
2. Life Assured: This is the individual for whom the insurance is purchased. It’s possible that this isn’t the same as the policyholder. If you buy life insurance for yourself, for example, you will be the policyholder and the life assured. If you acquire insurance for a parent and pay the monthly premiums, you will be the policyholder, while your parent will be the life assured.
3. Nominee: The nominee, also known as a beneficiary, is the person who inherits the sum assured if the life assured dies during the policy’s term. This is frequently a family member or a close relative who is picked by the policyholder.
4. Sum Assured: This is the amount paid to the nominee by the insurance company upon the death of the life assured. Consider the following scenario: you purchase a term life insurance policy for yourself and name your wife as the beneficiary. At the time of purchase, you will be requested to set a sum assured. Let’s say the sum assured is one crore rupees. Your wife will now receive the sum insured of 1 crore from the insurance firm in the terrible event of your death within the policy’s term. The sum promised is sometimes referred to as the “cover” in some cases.
5. Policy Term: This is the length of time that the insurance policy is in effect. This period can vary from one insurance to the next, and can last anywhere from a year to a lifetime. Assume that an insurance policy has a 50-year policy term. If the policy’s life assured dies during this time, the insurance company will be responsible for paying the sum assured to the nominee. This is often referred to as policy tenure or longevity.
6. Premium: The policyholder pays a set amount to the insurance company in exchange for coverage. You can choose from a variety of payment options, including monthly, quarterly, and annual payments. An insurance policy’s premium is a significant consideration.
7. Payment Term/Mode: The payment term or mode refers to the various methods by which you can pay the insurance company your premium. There are three main types of payment methods:
  • The policyholder pays premiums on a regular basis throughout the insurance period.
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  • Limited Pay: The policyholder can choose a certain payment period for the premium in this plan. If you choose 5 years, for example, you will only have to pay premiums for 5 years while the insurance stays in effect for the entire time you choose.
  • Single Pay: The policyholder pays the premium all at once in this approach. This is normally paid when the insurance coverage is purchased.
8. Death Benefit: The death benefit is the total amount paid to the nominee by the insurance company in the event that the policyholder dies during the policy term. In most cases, this is the same as the sum assured. The death benefit in insurance plans with riders, on the other hand, can be more than the total assured.
9. Maturity Benefit: Some policies pay a lump sum to the policyholder if he or she lives to the end of the policy term. The maturity benefit is what it’s called.
10. Riders: Riders are add-ons to your existing term life insurance policy that are optional. They are in addition to the terms of your insurance policy. Benefits such as an accelerated critical sickness pack or an accidental death benefit pack are examples. Riders must be purchased separately by the policyholder at the time of purchase.
11. Claim: If the life assured passes away during the policy’s term, the insurance company does not pay the sum assured to the nominee directly. You must first make a claim with the company, following which you will be provided with coverage.
12. Free Look Period: Let’s say you buy term life insurance today but later decide you don’t want it. A free look period is a period of time during which you can cancel your insurance coverage without paying any penalties. This time frame varies depending on the policy.