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Know The Important Terminologies of Life Insurance

Know The Important Terminologies of Life Insurance

Life insurance is proving to be one of the most essential financial tools for the modern Indian family. It provides a financial cover to one’s family in case of the unfortunate death of the life insured. In India, the importance of life insurance cannot be overstated. As per recent reports, 75% of the Indian population, i.e. nearly 988 million individuals do not have a life cover. This can largely be attributed to a lack of awareness of its primary features and distinct benefits. Thus, in order to increase life insurance penetration in India, the aim should be to promulgate the key concepts and features associated with life insurance.

For a beginner, to understand all about life insurance could be a task, owing to a large number of technical terms and insurance-related jargon. Here are the most basic life insurance key terms for one to begin with.

Life insurance key terms

Sum assured

The sum assured, also known as the life cover, lies at the heart of a life insurance policy.

  • The sum assured is the amount of money promised to the policyholder’s nominee upon their death, as per the terms of the policy.
  • The general rule of thumb is to opt for a sum assured that is 10-15 times your current annual income.
Premium

The premium is another life insurance key term.

  • The amount that you pay your insurer for continued policy coverage is called the premium.
  • The premium-paying frequency can differ as per your financial needs. It can usually be paid monthly, annually or bi-annually.
  • If you fail to pay your premium as the terms of the policy require you to, your policy might terminate after factoring in the applicable grace period.
Maturity
  • You may have heard of the phrase, ‘once your policy reaches maturity’. This merely implies that your policy period is over.
  • In certain cases, you might receive a lump sum amount upon maturity, if you outlive the policy term. This is called the maturity benefit.
  • In case of traditional life insurance policies, you can renew the policy upon maturity and continue enjoying the life cover.
Death benefit

In case of your unfortunate demise within policy term, the person you had nominated while acquiring the policy will receive an amount which could include sum assured, bonuses, premiums paid, or any other amount as per policy terms. This amount is called the death benefit.

Nominee
  • The nominee is a person appointed by you while opting for the policy.
  • The death benefit is paid to this nominee.
  • It could be your spouse, child, parents, etc. There is usually a separate procedure in case you want to name a friend.
Riders

These are additional benefits that you can add to your policy to enhance your coverage. They can be bought while buying the policy or even afterwards. They save you the hassle of opting for another policy. Some of the most common riders offered by life insurance firms are

  • Accidental Death Benefit
  • Accidental Total and Permanent Disability Benefit
  • Critical illness Cover
  • Child Support Benefit
  • Waiver of Premiums (in case of a certain incident such as accident, further premiums are waived off and policy remains active)
Grace period

If you fail to pay your premium, the insurer will offer you a buffer time called the grace period. However, if you fail to clear your dues even after the grace period, your policy might lapse. It is advisable to choose a premium amount and mode that fits well into your budget to avoid lapse of policy.

Surrender value

If your policy term hasn't ended and you still wish to discontinue your policy, you surrender it. You might receive an amount from your life insurance company, which depends on policy terms. It would be best to check this while buying the policy itself.

Claim

In case of one’s death during the policy term, their nominee would have to make a claim with the insurance company. It is also necessary for your nominee to know all about life insurance in order to carry out this process smoothly and receive the proper amount to help your family.

Conclusion: Now that you’re acquainted with the various benefits a life insurance policy can provide, here’s a look at a policy that packs them all in. Canara HSBC Oriental Bank of Commerce’s iSelect Star Term Plan. The iSelect Star Term Plan is a highly flexible plan that can be molded as per your financial goals and requirements with various options for coverage, premium payment, and payout as well. It also offers lucrative options like spouse cover, accidental death benefit and child support riders, return of premiums option, and much more.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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