If you are someone who is looking to buy a term insurance plan but not familiar with the terms mentioned in the policy documents and are too shy to ask, look no further, we have got you covered. Explained below are the most commonly used insurance terms that you may come across frequently. Read on!
The policyholder is the person who decides or proposes to purchase the term life insurance and pays the premium (#6). However, it is important to know that the policyholder is the one who owns the policy and may not necessarily be the life assured(#2)
2. Life assured
Life assured is the insured person, the person whose risk of death the policy covers so that the dependents or beneficiaries are not disadvantaged. Usually, it’s the policyholder, but that may not always not be the case.
3. Sum assured (Coverage)
Sum assured is the amount that the insurance company pays to the dependents/beneficiaries in case of death of the insured person during the policy tenure. The sum assured is also known as “ Death benefit “. It is very important to get a policy with adequate cover so that your family has sufficient financial cushion in your absence.
P.S.If you are planning to buy a term insurance policy,checkout the cover you would require here.
Nominee is the beneficiary who gets the sum assured in case of the unfortunate death of the insured person. The beneficiary could be spouse, parents, children or other dependents of the insured person.
5. Policy Tenure
Tenure is the time period for which the insurance policy provides coverage. Policy tenure can range from a year to whole life depending on the type of insurance policy purchased. A policy is said to reach maturity once the tenure ends.
Premium is the regular amount you pay to keep the insurance plan active and receive coverage as a result. Failure to pay the premium leads to policy termination. Depending upon the plan you choose and the insurer, payment options can vary from a one-time payment to monthly, quarterly, half yearly and yearly payments.
Riders are additional covers that widen the offerings of the base policy. You can secure extra cover for your family for certain situations by opting for riders. For instance, accidental death or critical illness cover are a few examples of riders that can be obtained by paying a slightly higher premium. The number and types of riders along with the minimum and maximum cover limit varies from one insurer to another. Riders can be bought at the time of buying the policy or can be added later as well.
8. Free-Look period
Free look period is the time frame within which you may choose to return the purchased policy. If you do not agree to the terms and conditions or perhaps find the features of another policy more suitable to you, you can return the policy within the free look period. The policy premium will be refunded after subtracting the medical examination expenses, stamp duty charges, and other miscellaneous charges. The free look period ranges from 15 to 30 days.
Underwriters evaluate the risk involved in the issuance of an insurance policy. They evaluate the risk based on the profile of the applicant and only after the underwriters approve, the policy is issued. The risk evaluation process starts with the issuance of the policy and lasts until the claim process. Only upon the approval of the underwriters, the nominee is paid claim benefit.
Exclusions is an important section of the policy document and should be read very carefully. Exclusions are the cases which are not covered in the policy and any claim against exclusions will not be considered valid by the insurer. For example, death due to certain situations might not be covered under certain insurance policies.
11. Tax Benefits
Under Section 80 (C)of the Income Tax Act, 1961, the premium paid towards a life insurance policy is eligible for deductions, with the maximum amount that can be claimed as deductible is Rs 1.5 Lakh. The benefit paid to the nominee is tax-free under Section 10 (10D) of Income Tax Act,1961.
12. Claim Process
This is the process initiated by the beneficiary/nominee at the death of the life assured. The nominee lodges a claim to receive the sum assured. If the insurance company is satisfied with all particulars and furnished documents, then the nominee receives the amount through the preferred payment method.