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Life insurance is a financial product that ensures your family’s financial stability in the event of your unfortunate absence. These plans can not only help you protect your family’s financial future but also help you build wealth that can be used to beat future inflation and fulfil financial goals. But before we get into the various benefits and features involving these plans.
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Let us see some of the common life insurance terminologies that can help us understand the policy details and documents better:
Term Plans
Premium: Premium is the amount you have to pay to receive insurance coverage. The premium amount may increase or decrease depending on the type of life insurance policy, but in most cases, the premium remains the same throughout the policy term.
Premium Payment Mode: Life insurance plans in India often provide customers with the option of choosing their suitable premium payment mode from monthly, quarterly, annual, and semi-annually.
Premium Payment Term: The premium payment term refers to the duration for which the policyholder has to pay the premiums. The premiums can be paid in single, limited, or regular premium payment terms.
Policy Term: It is the tenure during which the insurer has agreed to cover the policyholder and provide the policy’s benefits. Most insurance plans provide the option of choosing the required policy term, which you can extend with whole life insurance policies till 99/100 years of age.
Claim Amount: Claim amount refers to the benefit amount a person is eligible to receive after the death of the policyholder in case of a death claim and the maturity amount in case of a maturity claim.
Death Benefit: Death benefit is also called the life cover amount. The death benefit is the amount payable at the death of the policyholder during the policy term as per the policy details. The death benefit amount might not be equal to the sum assured on death as the death benefit may include rider sum assured or participating bonuses (if any).
Exclusions: Every life insurance policy has its set of exclusions, which is a set of conditions under which the policy does not provide coverage. For example, The death of the policyholder due to suicide is not covered under the 1st year of most term insurance policies.
Free Look Period: This is the period provided right after policy issuance, during which the policyholder can go through the policy documents and their T&Cs to ensure they are ok with all the T&Cs of the policy. If unsatisfied with the policy details, the policyholder can return the policy during this period and receive the premium back minus nominal charges. The usual free look period for online policies is 30 days, whereas, for offline or agent-sourced policies, it is 15 days.
Grace Period: The grace period is the additional period provided to the policyholder to pay their premiums even after the end of the due date. The policyholder can pay his/her premiums without worrying about policy lapse during this period. The typical grace period offered by the top life insurance companies in India is 15 days for monthly mode policies and 30 days for quarterly, annual, and semi-annual policies.
Lapsed Policy: In case the policyholder does not pay the premiums even after the end of the offered grace period, the life insurance policy automatically goes into lapse and does not provide any cover to the policyholder.
Life Assured: It is the person who is covered under the policy’s benefits. Oftentimes, people confuse the policyholder as the life assured, but they are the same people only for life insurance plans bought for “self.” If a person buys a child plan for their child, the policyholder will be the parent purchasing the policy, and the life assured will be the child covered under the plan’s benefits.
Maturity Benefit: This is the amount payable to the life assured on surviving the policy term. It is also referred to as the sum assured on maturity and can be a pre-determined amount or an uncertain benefit amount depending on the type of life insurance you have opted for. In term insurance plans, however, maturity benefit refers to the return of the premiums paid throughout the policy term at the maturity of the policy.
Nominee: The nominee or the beneficiary of a life insurance plan is the person appointed by the policyholder to receive the death benefit amount in case of the policyholder’s death during the policy term.
Paid-up Benefit: Some life insurance plans offer the paid-up benefit, according to which, after the end of a certain waiting period, if the policyholder fails to make the due premium payment, instead of going into lapse, the insurer will reduce the sum assured amount of the policy as per the premiums paid till that point and the policy will continue to provide cover.
Revival Period: After the policy has lapsed due to non-payment of the due premiums, the insurer offers a revival period during which the policyholder can revive the policy at its original premium rate and term. The insurer may require a new medical report, the outstanding premiums and its applicable interest amount before reviving the policy.
Riders: The riders are the optional benefit that you can add to the base life insurance plan to enhance the policy’s base coverage. The most important term insurance riders available in India are hospicare riders, critical illness riders, terminal illness rides, accidental death benefit riders, accidental total and permanent disability riders, and waiver of premium riders.
Sum Assured: Sum assured is the amount the insurer agrees to pay to the nominee's family in case of the policyholder’s untimely death or any other eventuality. For example, if a person purchased a life insurance of 50 Lacs, the amount of 50 Lacs is the sum assured, which will be paid to the nominee on the death of the policyholder.
Surrender Benefit: Due to any reason, if the policyholder wants to discontinue his/her life insurance policy after the end of the waiting period, the policyholder can cancel the policy and receive the cash value accumulated till that point. The policy will terminate after the surrender benefit amount is paid to the policyholder.
Survival Benefit: Some life insurance plans offer periodic survival benefits on outliving specific policy years during the policy term. This amount may include any applicable bonuses like accrued or revisionary bonuses.
Tax Benefits: As per the Government of India, you can claim life insurance tax benefits under sections 80C, 80D, and 10(10D) of the Income Tax Act of 1961. These benefits are subject to change as per the prevailing tax laws.
Before proceeding to buy the most suitable life insurance plan, everyone needs to understand the terminology of life insurance. This way, everyone looking to buy life insurance will not be dependent on the agent or their financial advisor and can go through the policy documents themselves to get a better understanding of the policy’s T&Cs. You can go through the list of life insurance terminology mentioned above and choose the best life insurance plan wisely.
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