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Important Terminologies of Life Insurance

Important Terminologies of Life Insurance
  • 30th Sep 2019 |
  • 2,012

Purchasing a life insurance plan is a very important financial decision. In the case of such a plan, the policyholder’s nominees will receive a lump sum if the insured passes away during the policy tenure. Moreover, some plans also offer maturity benefits.

It is essential to learn a few important insurance terms before you invest in a life insurance policy. This way, you can make an informed decision.

Important terminologies of life insurance

  • Insurer and Insured
  • The insurer is the insurance company that provides the policy. The Insured is the person who buys the policy.

  • Grace period
  • It is an extended due date for the premium payment. It is offered when you fail to make the payment on time.

  • Free-look period
  • It is one of the most important insurance-related terms. It is a fixed period in which you can return the policy if you feel that the terms and conditions are not suitable. ·

  • Lapsed policy
  • If you are unable to pay the premium even after the grace period, your policy lapses, and you do not receive any benefits.

  • Death benefit
  • It is one of the most common insurance terminologies. You must have heard of this quite frequently. It is the payment, which the insurer pays to the policyholder’s nominees in case the insured passes away during the duration of the policy.

  • Accident benefit
  • This benefit is paid to the nominees of the policyholder in case of an accidental death. Check what kind of accidental deaths are excluded before purchasing a policy.

  • Sum assured
  • This is the lump sum paid by the insurance company when an insurance claim is accepted. The amount is pre-decided by the policyholder while investing in the policy.

  • Cash value
  • Among the many terminologies used in insurance, ‘cash value’ is one of the most important ones. It is the portion of the premium used by insurers to invest in different options. You earn interest from it.

  • Claims settlement ratio
  • It is the ratio of the number of claims received by an insurance company and the number of claims processed by them in a year.

  • Reinstatement
  • If you want to revive the policy after it has lapsed, you can apply for the same to your insurer. The process is known as ‘reinstatement’ and it has to be done within a specific period.

  • Rider
  • You can include an additional paid-up feature in your existing insurance policy for a higher premium. This facility is known as a rider. It comes with added benefits.

  • Moral hazard
  • You must be aware of this basic insurance terminology. It is related to the character and attitude of the insured. Indifference or immorality of the policyholder can result in the insurer’s loss. This condition is known as ‘moral hazard.’

  • Vesting age
  • It is the age when you start receiving insurance benefits if your policy comes with a periodical payment plan.

    Knowing the basic insurance terms will help you understand your policy documents more thoroughly. It will save you from claim denial.

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Ref. No. KLI/22-23/E-BB/492

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