Often when you want to buy a life plan, you need to go through several technical terms. Such confusing terms are deterrent to several people who then avoid buying an insurance cover.
Even when you buy a life insurance plan, you may not be aware of all the terms. To ensure you purchase the right policy, it is crucial to understand some basics.
Important life insurance terms you must understand before making your buying decision:
1. Accident
It is an unforeseen occurrence, which results in an injury
2. Age limit
These are the minimum and maximum ages wherein the insurance company does not accept new or renewal proposals
3. Agent
He acts as the representative of the insurance company to sell its products and is an intermediary between you and the insurer
4. Application or Proposal Form
The form includes all your information; it is often by the agent or a medical examiner when medical tests are required; it must be signed by you
5. Policyholder
He proposes to buy the life insurance policy and pays the premium; he may or may not be the life assured
6. Life assured
He is the one who is covered under the policy and may or may not be the policyholder
7. Sum assured
This is the maximum amount the insurer agrees to pay in case of the demise of the life assured or on the occurrence of any insured event
8. Nominee
In case of any untoward incident, the policy benefits are paid to your legal heirs known as nominees, who may be your spouse, parents, or children
9. Policy tenure
This is the total duration, during which the life cover is available and varies depending on the type of policy
10. Maturity age
This insurance term determines the age when the policy benefits end
11. Premium
It is the amount you pay at periodic intervals to ensure that the policy remains active and you are eligible to receive the benefits under the same
12. Premium payment mode/frequency/term
The insurers offer multiple options as follows to ensure you make timely payment of the premium:
Regular premium
The premium is paid during the policy duration either monthly, quarterly, semi-annually, or annually
Limited premium
The premium is payable only for a limited pre-determined period
Single premium
Insurance companies also provide single premium plans wherein you pay a lump sum amount to avail of coverage for the entire duration
13. Death benefit
This is one of the most common insurance-related terms; it is the amount, which the insurer pays your nominees in case of an unfortunate event during the policy term
14. Maturity/survival benefit
The insurance companies pay this amount if you survive the policy duration; however, these benefits are not available with a term plan
15. Free-look period
This is one of the essentials of a life insurance contract and is the time during which, you may return the policy if you are uncomfortable with the terms and conditions
16. Grace period
It is the additional time available to pay the renewal premium if you are unable to pay it on or before its due date
17. Surrender value
One of the other important insurance terminologies is the surrender value; it is the amount, which you will receive if you discontinue the policy before its maturity
If you do not understand the terms related to insurance, it is likely you may buy incorrect coverage. Hence, you must understand these terminologies to make a wise investment decision.
