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Term Insurance Terminology

Understanding the related terms is crucial if you are considering term insurance. Read this blog to learn the essential concepts enabling informed decisions about your financial future.

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Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Term insurance provides coverage for a particular period, safeguarding your family financially in case of your untimely demise. Knowing the term insurance terminology will help you to make well-informed choices.

Key Takeaways

  • Term insurance is a type of life insurance that offers coverage for a specific period, known as the policy term.
  • The key terms of term insurance include premium, policy term, sum assured, nominee, death benefit, riders, underwriting, convertible policy, and surrender value.
  • The factors affecting term insurance premiums include age, gender, health and lifestyle.
  • There are several misconceptions about term insurance, such as it is expensive, only benefits the insured, and healthy individuals do not need it.

If you are considering purchasing term insurance understanding the terms related to term insurance should be your top priority. Knowledge of terminology used in insurance premiums will clarify doubts and help you select the best plans.

Introduction to Term Insurance

Term insurance is a type of life insurance that offers coverage for a specific period, known as the policy term. It offers financial protection to your family in the event of your untimely demise during the policy duration. Unlike other life insurance types, term insurance does not build cash value and primarily focuses on providing beneficiaries with a death benefit.

Also Read: What is Term Insurance?

Understanding the Terminology

Take a look at the essential terms associated with term insurance:

Premium

The premium is the amount you pay the insurance company regularly (monthly, annually) to keep your policy active. Various factors, including your age, health, sum assured, and term length, determine the cost of the premium.

Policy Term

The policy term is the duration for which the insurance coverage remains active. Selecting a policy term that aligns with your monetary goals and the needs of your beneficiaries is crucial.

Sum Assured

The sum assured is the amount your beneficiaries will get from the insurance company if the policyholder passes away during the policy term. This financial safety net ensures your loved ones’ financial stability in your absence.

Nominee

A nominee is a person you designate to receive the death benefit in case of your demise. It could be a family member, spouse, child, or anyone you trust to manage the funds responsibly.

Death Benefit

The death benefit is given to the nominee upon the policyholder’s death. It serves to replace the policyholder’s income and cover financial obligations.

Riders

Riders are additional advantages that can be attached to your term insurance policy for extra coverage. Common riders include critical illness coverage, disability coverage and accidental death benefit.

Underwriting

Underwriting is the procedure where the insurance company evaluates your risk profile based on factors like health, lifestyle, and medical history. This assessment determines your insurability and premium rate.

Convertible Policy

Some term insurance policies offer a conversion feature, allowing you to convert your term policy into a permanent life insurance policy without undergoing a new medical exam. It can be advantageous if your circumstances change and you want lifelong coverage.

Surrender Value

In some term insurance policies, a surrender value may be available if you terminate the policy before its maturity. It is the amount you receive upon surrendering the policy.

Coinsurance

After your deductible has been met, you must pay coinsurance, which is the amount you pay to split the cost of covered services. Typically, a percentage represents the coinsurance rate. For instance, if the insurance provider pays 80% of the claim, you are responsible for 20%.

Coordination of Benefits

When you are covered by multiple group health plans, coordination of benefits is a system used to prevent benefit overlap. Benefits under the two plans are typically capped at a maximum of 100% of the claim.

Copayment

Copayment is one way that you contribute to the cost of your healthcare. You only have to pay a set amount (such as ₹300 per doctor visit) to cover some medical costs; the rest is covered by your insurance.

In-Network Provider

An in-network provider is a doctor, hospital, or pharmacy that is a part of the preferred provider network of a health plan. Because in-network providers have agreed to a reduced rate for their services in exchange for the insurance company sending them more patients, you will typically pay less for the services you receive from them.

Out-of-Network Provider

A healthcare professional, hospital, or pharmacy not part of the provider network for a health plan is known as an out-of-network provider. In general, out-of-network providers will cost more for your services.

Waiting Period

A waiting period is a time that you must wait before your health insurance policy will cover certain benefits. The waiting period can vary depending on the type of benefit and the insurance company.

Conclusion: Securing Your Tomorrow

In a world of uncertainties, term insurance is a pillar of financial protection for your loved ones. By understanding these key terms and concepts, you can to proceed with term insurance. Assess your needs, explore options, and choose to align with your financial goals. Remember, term insurance is not just a policy – it is a promise to safeguard the future of those you cherish the most.

- A Consumer Education Initiative series by Kotak Life

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