Life insurance is one of the most important financial tools that provides life cover to the family members in case of unforeseen demise of the policyholder. Nowadays, various types of life insurance plans are available. In India, the necessity of a life insurance plan cannot be inflated. Recent statistics state that more than 70% of the population in India does not have life insurance. This can be major because of the lack of awareness about the features and benefits of the plan.Read more
So, to increase the penetration of life insurance in India, it is imperative to be informed about the basic concepts, features, and benefits related to it.
Policyholder: The policyholder, also called a policy owner, is an individual who proposes the purchase of the life insurance plan and pays the fixed amount of premium regularly. He/she is the owner of the policy.
Life Assured: Life Assured is the person who is insured or for whom the life insurance is purchased to cover the risk of unforeseen demise. Mainly, he/she is the sole earner of the family. Life assured may/may not be the policyholder. Let’s see an instance if you buy life insurance for your father and pay a monthly amount of premium for him, then you will be called the policyholder and the life assured will be your father.
Nominee: A nominee is an individual who receives life cover when the life assured dies during the policy term. This is mainly selected by the policyholder who is generally a close relative or family member.
Sum Assured: Sum assured is the sum that the insurer pays to the beneficiary/nominee on the life assured’s death. For instance, if you buy a term insurance plan and propose your wife as the nominee or beneficiary. You will have to choose a sum assured at the time of buying. Let's say you have chosen Rs.1 Crore. So, in case of an unfortunate death during the policy term, your wife will get the sum assured amount of Rs.1 Crore from the insurer.
Policy Term: Policy term is the duration for which the life insurance plan is valid or active. This can vary from one policy to another and can vary anywhere between 1 to 100 years or lifetime, depending on the types of life insurance policies and their T&Cs. It is also called policy tenure.
For example: If the policy term of a plan is 40 years. If someday, the life assured dies during this time, the insurer will be eligible to pay the life cover to the nominee.
Premium: It is the fixed amount that a policyholder is required to pay to the insurance provider in exchange for the insurance life cover. You can select different premium payment terms such as monthly, quarterly, yearly, etc.
Premium Payment Mode or Term: It refers to the different types of options in which you can pay the premium amount to the insurer. Primarily, there are 3 types of modes of payment:
Regular Pay: The policyholder pays a premium throughout the policy tenure.
Limited Pay: Policyholders can choose any certain time for paying premiums like if you select 5 years, then you are required to pay premiums for 5 years while the plan remains active for the whole term chosen by you.
Single Pay: The policyholder pays the amount of premium at one time which is generally paid while buying the insurance plan.
Death Benefit: Death benefit is the total amount paid by the insurer to the nominee in case of the policyholder’s demise. This amount is equivalent to the sum assured.
Maturity Benefit: Maturity amount is the total sum received in case the policyholder outlives the policy tenure.
Riders: Riders are the additional benefits to your current base term insurance plan which can be purchased at the time of issuing the policy. Some of the riders available with life insurance plans are:
Accidental Death Benefit Rider
Critical Illness Cover
Accidental Total and Disability Benefit Rider
Waiver of Premium
Child Support Benefit
Claim: In case the life assured passes away during the policy term, the insurer doesn’t pay the life cover (sum assured) amount directly to the nominee. To receive the coverage amount, the nominee has to file a death claim to the insurance company.
Free Look Period: Free look period is the time during which policyholder can choose to return the purchase plan. If you are not satisfied with the T&Cs, you can request for returning the plan within the free look time. The company after deducting the medical examination fees, stamp duty rates, and other rates, will refund the rest premium amount. As per IRDAI, the free look period in life insurance is 15 days or 30 days.
Grace Period: If you fail or couldn’t pay a premium on time, the company will provide you with an additional number of days called the grace period. However, after the grace period, if you fail to clear your dues, your plan might lapse. Various insurers provide a grace period of 15 days in case of monthly premium payment medium and 30 days in case of yearly premium payment medium.
Surrender Value: If the policyholder wants to discontinue the plan before the maturity age, the company pays an amount to the policyholder which is called the surrender value.
Paid-up Value: If a policyholder decides to discontinue paying premium after a fixed period, companies will provide an option to convert the plan to a reduced paid-up plan. In this, the sum assured amount is decreased in proportion to the premium amount paid (in number).
Revival Time: As discussed in the grace period section, if the policyholder doesn’t pay the premium during the grace time, the plan lapses. However, the company provides an option to revive the lapsed plan if the policyholder still wants to continue with the plan, called the revival period.