Purchasing life insurance is among the best decisions you can make for your family’s financial future. Naturally, there is no practical method by which you may determine the monetary worth of your life or that of a loved one. However, you can undoubtedly plan and organise your money to cover any long-term debts or liabilities you may have by going for life insurance policy Here are some crucial terms and phrases you should understand before choosing the best plan.
Important Life Insurance Terminology
- Insurance: Insurance is a legal agreement between a person or an organisation and an insurance provider that provides financial protection or payment in the event of predetermined losses.
- Insured: The term “insured” refers to the individual or organisation that an insurance policy covers.
- Insurer: The insurance provider is known as the insurer and is responsible for offering the insured financial protection or monetary compensation in the event of losses.
- Policyholder: This term refers to someone who buys an insurance policy and pays the premium. The policy may or may not have been purchased by the policyholder for themselves.
- Sum Assured: This is the entire amount a life insurance policy beneficiary will receive if the insured person passes away during the policy term.
- Premium: Policyholders must pay a premium to the insurer to get and maintain a policy. The sum assured and other benefits determine the premium amount, which should be paid either as a lump sum or on a monthly, quarterly, or annual basis. A Life insurance premium calculator can indicate the required monetary commitment to buy a particular policy.
- Coverage: Insurance coverage is the sum an insurance company will pay the insured if they suffer a predetermined loss to themselves or their property. The insured/policyholder must pay the determined premium amount to the insurer to be eligible for a specific level of financial coverage.
- Life Assured: An insured person for whom the life insurance policy provides financial protection is referred to as “life assured.”
- Term insurance: Also known as term policy, it is a type of insurance that offers life cover for a predetermined “term” in years. An insurance company will pay an assured compensation to the nominee after the amount if the covered person passes away during an active policy.
- Nominee or Beneficiary: In a life insurance policy, a nominee or beneficiary is the chosen person set to receive the death benefit if the insured person passes away during the active policy term
You can use the Life insurance premium calculator to determine the premium amount for adequate coverage for your nominee.
- Free Look Period: This term refers to a timeframe allowing the policyholder to evaluate the insurance document. The policyholder may return the issued policy to the insurer if they disagree with any terms and conditions. After deducting administrative costs, the insurer must return the premium the policyholder paid.
- Age Limit: This specifies the maximum and minimum ages for a policyholder to get life insurance. An insurer can refuse life cover if the buyer is too old or young. The usual eligible age for term insurance is 18 – 65 years.
- Grace Period: The insurer provides a 15–30 day grace period for payment if the policyholder delays insurance premium payment. During this time, the policy remains in effect. Unpaid premium amount after the grace period results in policy lapse and loss of life cover.
- Maturity Date: On this date, the policy finishes its term. After this date, the insurer stops offering life cover on the said policy.
- Maturity Claim or Survival Benefit: Suppose the insured survives the policy period. Then some insurance providers give the policyholder a maturity claim or survival benefit. This amount is sometimes similar to the lifetime premium paid and can include additional bonuses.
- Rider: A paid add-on that broadens the coverage of a normal term insurance policy is known as a term insurance rider.
- Surrender Value: Suppose a policyholder cancels a policy in the middle of its term. The insurer can offer a partial payment, known as the surrender value, to the policyholder. Not all insurers have this option. Additionally, this sum is a minute fraction of the actual premiums.
- CO Life Insurance: Company Owned Life Insurance, or COLI, refers to a life insurance policy that a business purchases on behalf of its employees. The firm becomes the policyholder, and the employee becomes the insured who will benefit from this policy.
- Exclusions: An exclusion is any occurrence or kind of loss that lacks coverage by the insurance policy. Be sure of everything that is being excluded from your policy to know your exact benefits.