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Life insurance is an essential financial instrument that should be a part of your portfolio. However, when it comes to buying it, we often get confused with the terminologies related to it. Policyholders must be acquainted with the jargon to manage their policies efficiently.
Let us explore the important terminologies of a life insurance policy.
The accidental benefit is paid to the nominees if the policyholder passes away in an accident. There are accidental temporary and permanent disability riders as well.
Learn more about disability riders here.
It is a contract between the policyholder and the life insurance company where the policyholder makes payments and receives regular payouts in the future.
Read more about annuity.
Cash value is the portion of the policy that earns interest. Also, it may be available to withdraw or borrow against if an emergency occurs.
It is a formal request to the insurance company for compensation for the losses covered under the life insurance policy. The insurance company validates the claim, and if approved, it issues the payment to the interested party.
Claim Settlement Ratio, or CSR, refers to the percentage of claims settled by the life insurance company during the previous financial year. It is an indicator of how quickly the nominees are paid the claims. Hence, it is an important factor to be considered while choosing a life insurance company.
Death Benefit is a common term that you will come across frequently. It is the amount paid to the nominees if the policyholder passes away during the policy term. With a term insurance policy, this amount is the same as the sum assured. However, other life insurance policies may include accrued bonuses and loyalty additions.
Certain things or events are not covered under a life insurance policy. If any claim is made on these exclusions, the insurance company is not liable to pay any compensation or benefit.
For example, a term insurance policy has an exclusion of suicide. The policyholder commits suicide within a year of buying the policy, depending on the terms and conditions of the policy, the death benefit may or may not be paid to the nominees.
Typically, this 15-day window is provided to all the policyholders for reviewing their policies and accept it. If the policyholder feels like not going ahead with the policy, they can do so within the free-look period.
If the policyholder does not pay the premiums even before the end of the grace period, the policy gets lapsed.
An insurer is the insurance company. An insured is an individual covered under the life insurance policy. Remember that a policyholder is an insurer. However, the vice versa isn't correct.
Know more about an insurer and the insured.
A life insurance policy is lapsed when premiums are not paid even after the grace period. The policy doesn't remain in force. Some insurers offer revival of the policy. If the unpaid dues are cleared by the policyholder, the policy is revived.
The life assured is the person who is covered under the insurance policy. They may or may not be the policyholder.
For example, Viraat bought Canara HSBC Life Insurance iSelect Smart360 Term Plan. And he added his spouse to the same policy. Viraat is the policyholder and life assured. His wife is the life assured. His wife cannot be the policyholder as Viraat pays for the life insurance policy.
The maturity age is the age of the life assured when the policy terminates. It is similar to the tenure of the policy. The insurance coverage ceases on this date, and the policy comes to an end.
It is the amount a life insurance company pays when the policy terminates. This amount is generally guaranteed, however, in some plans, accrued bonuses and loyalty additions are included in the maturity benefit.
Learn in detail about maturity benefits.
A nominee, or beneficiary, is the person chosen by the policyholder, who will receive the death benefits of the plan when the policyholder passes away. It is generally a family member who can be nominated as a beneficiary.
Under this option, the sum insured is reduced in proportion to the number of premiums paid by the policyholder. If the policyholder discontinues the premium payment after a specified period, insurance company will offer the policyholder an option to convert the policy into a reduced paid-up policy. The benefits will also be reduced as per the new sum assured. That benefit is known as paid-up value.
The owner of the life insurance policy is the policyholder. Generally, a policyholder may or may not be the life assured in the policy. However, they pay the premiums for the policy.
Policy renewal is the process of renewing the existing policy. The contract is extended by the policyholder to continue their coverage for a specified period. Rather than buying a new life insurance policy, a lot of people consider renewing their plans.
It is the duration for which the insurance policy offers coverage. The tenure could range between 1 year to 100 years, depending on the policy. Generally, whole life plans offer life cover till 99 or 100 years of age.
Premium is the amount that the policyholder pays to the insurance company for the insurance coverage. Different life insurance companies offer different premium payment frequencies to the policyholders. A policyholder gets to choose from monthly, quarterly, annually, limited premium pay, and single premium pay option.
The life insurance policy lapses if the premium is not paid even within the grace period. However, policyholders can re-activate it by paying the premiums within a specified period after the end of the grace period. That specified period after grace period is revival period.
Riders are optional add-on features that enhance the life insurance policy. There are different types of riders offered with different types of plans:
✓Accidental Death Benefit
✓Child Support Benefit
✓Waiver of Premium
It is the guaranteed amount the nominees/beneficiaries will receive if the policyholder passes away during the policy term. Sum Assured is chosen by the policyholder during the inception. With some policies, you can increase the sum assured during the policy tenure for an increased premium.
If the policyholder decides to discontinue their life insurance policy before maturity, the insurance company pays an amount to the policyholder, known as surrender value. However, not all life insurance plans offer this feature.
Underwriting is an important process of issuing a life insurance policy. It is done to evaluate the risk involved in issuing an insurance to the individual who has applied for a policy.
The vesting age is when the policyholder receives the income as guaranteed in their pension plan.
Understanding the basic terminology will help you assess the life insurance plan as per your life goals. Choose the right insurance policy to help you achieve your financial milestones without many hassles.Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.
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