Technical Terms You Should Know Before Buying Life Insurance: Your Insurance Agent Doesn’t want you to know this

Technical Terms You Should Know Before Buying Life Insurance: Life Insurance is one of the most important investments you will make in your life. This investment will give you peace that the future of your loved ones is secure. As it is such an important aspect of one’s life, it is crucial to have a detailed knowledge of the life insurance policy. Someone who is not educated or is not from an insurance background might get confused with so many wordy terminologies available in the insurance policy. Even online articles written on financial websites contain such technical terms which are new to the normal person. It creates a sense of confusion and deters people from taking any productive steps. This can also create a slight distrust between the insurer and the person who buys the policy.

If you are considering purchasing a life insurance policy or if you are already a policyholder, it is essential to be familiar with the language and terms insurers use. Knowing these terms will give you confidence and help you make decisions on your own behalf. If you are someone who is completely new to the insurance world, then do not worry, we are here to help you. In this article, we will explain to you some important terminologies used in the context of insurance. This article will educate you about these technical terms so that when you buy your life insurance, you can fully comprehend the policy terms.

Technical Terms Related to Life Insurance

Since life insurance plays an important role in today’s day, it is of utmost importance to be aware of all its aspects. We have compiled a list of technical terms used in relation to life insurance and have explained them in simple terms. The list is listed below:

1) Policyholder

The individual who purchases and pays for a life insurance policy. In some instances, the policyholder may or may not be the person whose life is being insured.

2) Premium

The amount that the policyholder pays to the insurance company for insurance coverage is known as the premium. Different life insurance companies offer policyholders varying premium payment frequencies. A policyholder may select for monthly, quarterly, annual, limited premium payment, or a single premium payment.

3) Sum Assured (Coverage)

It is the amount that nominees/beneficiaries will receive if the policyholder dies during the policy term. The Sum Assured is selected by the policyholder at policy commencement. With some policies, you can enhance the sum assured for an increased premium during the policy’s duration.

4) Life Assured

It is essential to differentiate between a policyholder and a life assured. The life assured is the individual for whom a life insurance policy is purchased, and the policy covers the risk of their untimely mortality.

5) Nominee

The nominee is the designated legal heir by the policyholder to whom the insured sum and additional benefits will be paid in the event of a calamity.

6) Death Benefit

The phrase “death benefit” is one that you will hear frequently. If the policyholder passes away during the policy term, this sum is paid to the nominees. This sum corresponds to the sum assured in a term insurance policy. Other life insurance plans, however, might cover collected rewards and loyalty additions.

7) Claim Process

This is the process a nominee gets into, after the death of the life assured, and claims to receive the death benefit.

8) Claim Settlement Ratio (CSR)

The percentage of claims that the life insurance company settled during the preceding fiscal year is known as the claim settlement ratio. It serves as a gauge for how quickly the nominees are compensated for their claims. As a result, it should be taken into account while selecting a life insurance provider.

9) Riders

Riders are supplemental benefits that broaden the policy’s base. These differ from insurer to insurer and can be purchased at the same time as the base plan. Different types of Riders are offered with different types of plans, such as critical illness cover, hospital cash, waiver of premiums, etc.

10) Policy Tenure

The length of time the policy offers life insurance coverage is known as the “policy tenure.” Depending on the type of life insurance plan and its terms and conditions, the policy tenure can be any duration from 1 year to 100 years or whole life. It is frequently referred to as the policy term or the policy duration.

11) Maturity Benefit

The amount that the life insurance company pays when the life assured outlives the policy’s term is known as the maturity benefit. When the life assured has lived for the specified number of years under the policy, the survival reward is paid. Term plans don’t offer any benefits for maturity or survival. However, you can locate the survival benefit or the maturity benefit paid under the plan in other life insurance plans.

12) Free-look Period

The free-look period is a window of time in which one may decide to return the purchased insurance. You have the option to return the policy during this period if the terms and conditions do not sit well with you. The remaining premium will be refunded by the insurance provider after subtracting the costs for the medical examination, the stamp duty, and any other fees. The free-look period for life insurance is specified by the IRDAI to be 15 or 30 days after obtaining the policy document.

13) Surrender Value

The life insurance company pays the policyholder an amount known as Surrender Value if the policyholder decides to cancel the plan prior to the maturity age. Plans for life insurance do not always include surrender value.

14) Paid-up Value

With this option, the sum insured is decreased proportionately to how many premiums the policyholder has paid. The insurance company will provide the policyholder with the option to convert the policy into a reduced paid-up policy if the policyholder stops paying the premium after a predetermined amount of time. In accordance with the new sum assured, the benefits will likewise be lowered. This benefit is referred to as paid-up value.

15) Cash Value

The portion of the policy that generates interest is called cash value. In case of an emergency, it might also be possible to withdraw funds from it or borrow against it.

16) Grace Period

If a policyholder is unable to pay the premium by the due date, the life insurance company will provide an extension; in the case of monthly premium payments, this extended term is typically 15 days, and in the case of annual premium payments, it is 30 days. This period is known as the Grace Period.

17) Lapsed Policy

A lapsed policy is when one can no longer avail of the benefits available under a policy. After your policy expires, you will no longer be able to access any of its benefits and be unable to file claims against it. When a premium is not paid, even after the grace period, a policy typically lapses.

18) Revival Period

The policy expires if the policyholder does not pay the premium, not even during the grace period. However, the insurance provider offers the option of reactivating the expired policy if the policyholder still wishes to proceed. Once the grace period has passed, this has to be done within a certain amount of time. This specific time frame is called the Revival Period.

19) Annuity

It is an agreement between the policyholder and the life insurance provider whereby the policyholder pays payments and will eventually receive recurring payouts.

20) Exclusions

Read the “Exclusions” section carefully before purchasing any life insurance. These are things that are not covered by a life insurance policy and for which the insurance company would not provide any compensation in the event of a claim. Suicide, for instance, is excluded from coverage under any life insurance policy.

These are some of the most commonly used terminologies in the insurance world. You can now evaluate the life insurance plan in accordance with your aims after reading and having a basic understanding of the frequently used terminologies. Choose the best insurance policy to assist you in attaining your financial objectives without numerous problems.