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Understanding the term insurance terminology is essential for making the right decisions about policy selection, maximizing benefits, and ensuring financial protection for loved ones.
Term insurance is a simple insurance plan that offers coverage in case of a policy owner’s demise during the specified policy term. It is an essential tool for individuals seeking affordable coverage to secure their family’s financial future against the risk of their untimely death.
If you are considering purchasing such a plan, understanding key term insurance terms should be your top priority. Knowledge regarding these term insurance terms will clarify doubts and help you select the best plans.
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. You can estimate your premium using online term insurance calculators after entering key details such as coverage amount.
The policy term is the duration for which the insurance coverage remains active. It is crucial to select a policy term that aligns with your monetary goals and the needs of your beneficiaries. For instance, if you buy a 20 year term plan, your beneficiaries will receive the death benefit if you pass away during the 20 years. After 20 years, the policy will lapse.
The policyholder is the person or entity that owns the insurance policy. This individual or organization is responsible for paying the premiums and has the authority to make changes to the policy. They are the contractual party with the insurance company.
The sum assured is the amount 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. Let’s say you buy a ₹1 crore term insurance. In this case, your nominees will be eligible to receive the sum assured amount of ₹1 crore after your passing.
The person whose life is covered under the term or life insurance policy is called life assured. Confused about the difference between life assured and policyholder? Consider this example: if you buy a ₹2 crore term insurance to insure your spouse, they will be life assured. You will be termed the policyholder and responsible for premium payments. In the event of their death during the policy term, the insurance company will pay the death benefit.
Payment terms refer to the frequency and amount of premium paid throughout the policy term. It specifies the schedule of premium payments and can be of different types:
This is the most commonly used payment mode. Here, you must pay premiums regularly throughout the life of the plan.
You can choose the Limited Pay mode to make all the premium payments within a time frame. Say you can decide to pay the premiums of a 20-year policy within 5 years. After you have made all the payments, the coverage will remain in force for the remaining 15 years without you having to pay any more premiums.
Under this payment mode, you must pay the entire premium in a lump sum, generally at the time of policy purchase. You can thus avoid having to keep track of premium payments regularly.
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.
The death benefit is the amount that is given to the nominee upon the policyholder’s death. It serves to replace the policyholder’s income and cover financial obligations.
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.
As the name suggests, the maturity benefit is the payout received by the policyholder if the life insurance policy matures, meaning it reaches the end of its term. This benefit is paid if the policyholder is still alive at the end of the life insurance term.
Underwriting is the procedure where the insurance company evaluates your risk profile based on factors like term insurance age limit, health, lifestyle, and medical history. This evaluation helps the insurer determine term insurance eligibility criteria, any specific terms of the policy, and the premium rates. For example, individuals with pre-existing health conditions may face specific coverage exclusions based on the level of risk they present.
Some term insurance policies offer a conversion feature, allowing you to convert your term policy into a permanent whole life insurance policy without undergoing a new medical exam. It can be advantageous if your circumstances change and you want lifelong coverage.
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%.
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 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.
A waiting period is the time you must wait before your health insurance policy covers certain benefits. The waiting period can vary depending on the types of premiums in term insurance and the insurance company.
The free look period is a specific time frame, usually 15 to 30 days, during which the policyholder can review the terms and conditions of the insurance policy. If they decide to cancel the policy within this period, they can do so without any penalties and receive a full refund of the premium paid, minus any expenses incurred by the insurer.
Critical illness refers to a serious health condition such as cancer, heart attack, or stroke that is covered by an insurance policy. A critical illness policy provides a lump sum benefit if the insured is diagnosed with one of the specified critical illnesses during the policy term.
The percentage which represents the number of claims settled by an insurance company compared to the total number of claims received in a financial year is claim settlement ratio or CSR. It is an indicator of the insurer’s reliability and efficiency in handling claims.
The deferment period, also known as the waiting period, is the time span between the start of the policy and the point when the insured can begin to receive benefits or coverage. This is commonly found in health and disability insurance policies.
The Human Life Value (HLV) calculator is a tool used to estimate the financial value of an individual’s life based on their income, expenses, and other financial factors. It helps in determining the adequate amount of life insurance coverage needed to protect the financial well-being of the insured’s dependents.
The insured is the person or entity covered by the insurance policy. In life insurance, this term is often synonymous with the life assured. For other types of insurance, such as health or property insurance, the insured is the person whose health or property is covered under the policy.
An in-network provider is a hospital, doctor, 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.
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.
The amount the policyholder will receive from the insurance company if they decide to terminate the policy before its maturity date is known as surrender value. It is usually less than the total premiums paid and may include a penalty for early termination.
The survival benefit is a payout received by the life assured at specified intervals during the policy term, typically found in money-back or endowment life insurance policies. These benefits are paid if the life assured survives those intervals.
The beneficiary is the person or entity designated by the policyholder to receive the policy benefits, such as the death benefit, upon the death of the life assured. The beneficiary can be a family member, a trust, or a designated party.
Understanding term insurance terminology is your key to making informed decisions. By familiarizing yourself with these terms, you can navigate the world of term insurance with confidence. You can choose the right policy, maximize its benefits, and ensure your loved ones are financially protected in your absence.
1
The claim settlement process in term insurance involves the nominee submitting a claim form along with necessary documents, such as the death certificate and policy details. The insurer verifies the claim details and, if everything is in order, disburses the claim amount to the nominee. The process takes a few days to a few weeks, depending on the insurer and the complexity of the claim.
2
Premiums in term insurance are influenced by factors like the policyholder’s age, health, lifestyle habits (like smoking or drinking), the policy tenure, and the chosen sum assured. Riskier health and lifestyle profiles usually result in higher premiums.
3
To select an appropriate sum assured, consider factors such as your current income, outstanding debts, your family’s future financial needs, and inflation. Generally, financial advisors recommend a sum assured that is 10-15 times your annual income to ensure adequate financial support for dependents.
4
Choosing the right nominee is crucial because they will receive the policy benefits in case of your untimely demise. It is best to select someone who depends on you financially or someone you trust to use the funds responsibly, such as a spouse, parent, or child.
5
The free-look period is the timeframe (typically 15-30 days from policy issuance) during which you can review your term insurance policy. If unsatisfied, you can cancel the policy within this period and receive a refund of the premium paid, minus certain charges. This offers policyholders time to ensure their policy meets their needs.
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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.
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
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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