Can’t keep up with all the terminologies? Here’s a handy guide to all the words you might come across when learning about Life Insurance.
Accidental Death Benefit
The accident death benefit is a payment given to the beneficiary on account of the life assured dying of natural causes. The accident benefit is usually a clause or a rider connected to your life insurance policy. The benefit is paid in addition to the standard benefit payable to you.
An annuity is a contract with an insurer wherein you agree to pay the company a certain amount, either in installments or a lump sum. In turn, the insurer makes a series of payments to you at a future date, most commonly post-retirement.
The beneficiary is the person or entity entitled to receive the claim amount and other benefits upon the death of the life assured or on maturity of the policy.
In case the life assured passes away during the policy tenure, the nominee needs to lodge a claim to receive the benefit as mentioned in their policy.
There are two types of Claims:
When a Life Insurance policy has a maturity benefit involved, the insured is entitled to claim the maturity benefit if he or she happens to outlive the policy term.
When a Life Insurance policy has a death benefit involved, the beneficiary is entitled to claim the benefit if the life insured happens to pass away during the policy term.
Claim Settlement Ratio
When looking for an insurance policy, especially a Term Life Insurance policy, one of the major points to consider is the claim settlement ratio of the insurance company. The claim settlement ratio is the number of claims settled against the number of claims filed; higher the ratio, the better the insurer.
The money charged by an insurer (typically annually) in exchange for the insurance provided. The money charged by an insurer (typically annually) in exchange for the insurance provided.
A critical illness insurance policy provides insurance for life-threatening critical illnesses such as cancer, heart attack, renal failure etc. At the time of diagnosis of a covered illness, the insurer is liable to pay a lump sum as coverage.
The ‘Death Benefit’ is what the life insurance company pays to the nominee in case the life assured dies during the policy tenure.
Is the sum assured and death benefit one and the same thing? The death benefit can be the sum assured or sometimes higher, which may include rider benefit (if any), and/or other benefits. Except in term insurance, where there is no accrued bonus or guaranteed additions.
An effective date is the specific date that an insurance policy becomes active.
An endowment policy is essentially a life insurance policy which apart from providing life coverage also works as a savings pool for the policyholder. Provided the policyholder survives the term, he or she is entitled to receive a lump sum amount on maturity.
The entry age is the age starting which one can buy a Life Insurance policy. This age is usually 18 years.
Before you buy any life insurance, make sure you give the ‘Exclusions’ section a careful read. These are the things that are not covered under your life insurance policy, and if you claim against them, the insurance company is not liable to pay you any benefit.
Extra Life Option
Some insurance companies provide an extra life option wherein the life insured gets twice the sum assured in case of the unfortunate demise of the life assured due to any accident.
A free-look period is applicable to all new life insurance policies purchased. A free-look period is a time frame during which you may choose to return your purchased policy. The insurance company, after deducting expenses incurred on medical examination, stamp duty charges and other charges, refund the remaining premium if you wish to return your policy.
IRDA specifies the free-look period to be 15-30 days after receiving the policy document.
If you are unable to pay the premium for your policy on time and cross your premium payment due date, the life insurance company gives you an extension of a number of days. This is the ‘Grace Period’. It is usually a period of 15 days in the case of monthly premium payment mode, and 30 days in the case of annual premium payment mode.
If you are unable to pay the premium amount during the grace period as well, the policy lapses.
Group Life Insurance
Group Life Insurance is a type of life insurance in which a single policy covers an entire group of people. The policyholder is typically an employer of an organization, and the policy covers the employees or members of the group.
When a person who has purchased a Life Insurance policy for someone with the intention of deriving a financial benefit from the person’s passing, is what is called Insurable Interest.
Although this has usually not been the case, there are cases where people purchase Life Insurance policies for elderly acquaintances with the expectation of that person's near passing. Life insurance regulations have hence evolved to require a relationship in which the policy owner suffers a financial loss in the event of the insured's death.
The issue date is typically the date on which the insurance company approves and accepts your application for Life Insurance.
Joint Life Insurance is a type of policy wherein both you and your partner will be the owner as well as the beneficiary of the policy. So, in case something happens to one of you, your partner will receive the life coverage benefit.
Key man insurance, in simple terms, is when Life insurance is purchased for the key person in a business. In small businesses, this is usually the owner, the founder(s) or perhaps a key employee. The ones insured are usually the people without whom the company could sink.
A lapse is when a policy of a policyholder is terminated along with all its associated benefits due to non-payment of the premium amount on the due date or even after the grace period.
Life expectancy is the statistical age that a person is expected to live.
Life expectancy is used by life insurance companies to determine the amount of premiums. Life Insurance companies along with this data also consider lifestyle choices, family medical history, and several other factors to evaluate the premium amount for individual life insurance policies.
Life assured is the person whose life is insured under a Life Insurance Policy. The life assured may or may not be the owner of the policy.
Maturity / Survival Benefit
Maturity benefit is the amount that the life insurance company pays when the life assured outlives their policy tenure.
Survival benefit is paid when the life assured completes the pre-defined number of years under their policy.
Maturity age is the agreed upon age of the life assured, which ends the life insurance policy. For instance, you are 30 years old and you opt for a term plan with a maturity age of 65 years. That means the policy will provide you coverage till you are 65 years old, which in other words mean that the policy tenure is 35 years.
Money Back Plans
In a money back plan, the life assured gets a percentage of the sum assured at regular intervals, instead of receiving a lump sum amount at the end of the term. This is basically an endowment plan with a liquidity benefit.
Mortality is the rate of the number of deaths in general, or to a specific cause, of a specific population per unit time.
The ‘nominee’ is the person or the legal heir nominated by the policyholder who receives the sum assured and other benefits from the life insurance company in case of an unfortunate event. The nominee could be the wife, child, parents, etc. of the policyholder. The nominee needs to claim the sum assured from the life insurance company, if the life assured passes away while the policy is active.
A non-participating plan is when there is no share of profits or dividends with the policyholders. This type of policy is also known as a without-profit or non-par policy.
Term insurance or permanent life insurance plans are examples of non-participating plans.
A noncancellable insurance policy is a life or disability insurance policy that an insurance company cannot cancel, increase premium amount or reduce benefits of as long as the customer continues to pay his or her premium.
Occupational hazards are usually referred to risky or dangerous conditions associated with a job or surrounding a work environment that could increase the probability of death, disability, or illness to its workers.
If you discontinue paying your premium after a specified period of time, the insurance companies will offer you an option to convert your policy into a reduced paid-up policy. This option reduces your sum insured in proportion to the premiums you have paid.
If there are other benefits related to your sum insured that are payable, they will be reduced as well in proportion to the revised sum insured; this reduced sum is what we call the paid-up value.
A participating plan is an insurance contract that pays dividends to the policy holder. Hence, such policies are also referred to as a ‘with-profits policy’. The dividends are generated from the profits of the insurance company that sell the policy, and are usually paid out annually over the life of the policy. Some participating plans also include a guaranteed dividend amount, which is determined at the time of purchase.
ULIPs or Unit Linked Insurance Plans that pay bonuses or dividends can also be classified as participating policies.
A policy anniversary means the annual anniversary of the date of commencement of risk.
Policy issuance is the process of creating an insurance policy document that is customized to your needs. It includes validating your submitted documents, evaluating the risk involved (also known as underwriting) and finally delivering the policy to you.
A policy loan or a ‘Life Insurance Loan’ is a loan issued by an insurance company wherein the cash value of a person’s policy is used as collateral. If the borrower fails to repay the loan, the money is withdrawn from the death benefit.
Policy Tenure / Policy Term
The ‘policy tenure’ is the duration for which the policy provides life insurance coverage to the person assured. ‘Policy tenure’ can also be referred to as ‘policy term’ or ‘policy duration’. The policy duration can be any period ranging from 1 to 100 years, or whole life, where the life coverage is till the time the life assured is alive. The tenure depends on the type of life insurance plan you choose and its terms and conditions.
The policyholder is the one who purchases the life insurance policy, and is the owner of the policy. He/she is liable to pay the premium and may or may not be the life assured.
Premium is the amount you pay to continue being insured and keep your life insurance plan active. If you are unable to pay your premium before the payment due date and even during the grace period, your policy can terminate.
There are various options on how you can choose to pay your premiums – regular payment, limited payment term, single payment.
Premium Payment Mode / Term / Frequency
You can choose to pay the life insurance premium as per your convenience. There are two main ways you can pay your premium. Single Premium Payment which allows you to pay the premium as a lump sum in one single go for your entire plan. And there is a Limited Premium Payment, wherein you can choose to pay your premiums for a limited amount of time. In this option, you pay for a certain pre-fixed number of years, and not till the end of the policy term.
Return Of Purchase Price
A return of purchase price, usually present in annuity plans, is when the payouts are paid for the lifetime of the policyholder. On his or her passing away, the policy stops and the purchase price is returned to the nominee.
If you do not pay your premiums even during the grace period, your policy lapses.
However, if you still wish to continue, the insurance company provides you with an option to re-activate your lapsed policy. This must be done within a specific period of time after the grace period ends. This period is called the revival period.
Riders are additional paid features you can add to your original life insurance policy. There are different types of riders that you can buy along with your base plan. The number of riders and the type, however, differ from insurer to insurer. Check the terms and conditions, as they too may vary.
Here’s a quick list of the most popular riders offered by life insurance companies.
• Death Benefit Rider
• Critical illness Cover
• Waiver of Premiums
• Hospital Cash
• Accidental Total and Permanent Disability Benefit Rider
A life settlement takes place when one sells their life insurance policy to a third party for a one-time cash payment. The purchaser of the policy then becomes the beneficiary and is liable to pay the premiums.
Under a settlement option, the maturity amount entitled to a life insurance policyholder is paid in structured periodic installments (up to a certain stipulated period of time post maturity) instead of a 'lump-sum' payout. Such a payout needs to be intimated to the insurer in advance by the insured. The primary objective of settlement option is to generate regular streams of income for the insured.
A suicide clause is a provision found in most life insurance policies that states that the policy will become void if the policyholder commits suicide within a specified period of time from the policy start date.
Sum Assured / Coverage
The life assured passing away could lead to a large financial loss; this amount is generally chosen as the amount of coverage required when buying a life insurance plan.
For a life insurance company, the ‘coverage’ is the amount that the company agrees to pay on account of the person insured passing away.
If you decide to discontinue your plan before the maturity age, the life insurance company pays you an amount which is called the Surrender Value.
Please note that not all plans offer a Surrender Value. Read the terms and conditions carefully to see if a Surrender Value is applicable and if yes, how much it will be.
All premiums that you pay towards your life insurance plan are eligible for deductions under Section 80 (C) of the Income Tax Act, 1961. The maximum amount that you can claim as deductible is Rs.1.5 lakh.
The benefits paid to the policyholder/nominee are tax-free under Section 10 (10D) of the Income Tax Act, 1961.
A Unit Linked Insurance Plan (ULIP) is a type of product offered by insurance companies that gives users life protection as well as an investment option, under one integrated plan. A part of the premium paid is invested in capital products, such equities, bonds, etc.
Vesting age is the age when you start receiving pension from your insurance-cum-pension plan.
Waiver Of Premium
A waiver of premium in an insurance policy is a clause that says that under certain conditions the insurance company will not require the insured to pay a fee to maintain the policy. Most commonly, these conditions are the death or disability of the person paying the insurance premiums. The insurance company may, however, charge a higher premium to include this waiver in the policy to compensate for the additional risks presented with this clause.
Whole Life Policy
Whole life insurance is a type of policy that provides coverage for the entire life of the insured. In addition to providing a death benefit, whole life also contains a savings component for cash accumulation. These policies are also known as permanent or traditional life insurance.