Life insurance terminology and definitions – Check out the meanings of 20 most commonly used terms in life insurance before buying the best insurance plan online
Life insurance terminology and definitions !
Sum Assured : The amount of money paid out if death occurs during the term of the policy or on maturity , as the case may be.
Sum Assured depends on : Age , Health status , Financial eligibility , Occupation
Term : Duration of the policy for which the life insurance cover and all the applicable benefits are available .
Term cannot be increased or decreased . Each policy (has a boundary condition of maximum and minimum Years ) offers a range of policy term .
Premium : The money paid towards an insurance policy or the price for the insurance policy whether Single premium or Regular premium.
Modes for paying regular premium : Monthly , Half Yearly , Yearly – Premium is always paid in advance.
Premium Due Date : Date on which the premium is due to be paid.
Depends on the mode of premium payments.
Grace Period : In case the policy holder does not pay the premium on the due date , then an extended period is available to the policy holder to make the payment .
Grace period norms : Monthly premium :15 days grace period , Yearly and half yearly : 30 days grace period .
Lapsation Period : Incase the policy holder does not pay the premium on the due date or within the grace period , the policy lapses .The policy is no longer in force .
No life cover is provided incase the policy lapses .
Revival Period : A lapsed policy can be brought back in force by paying all the earlier unpaid premium with interest ( if application ) .
A predefined period is available for revival . Revival period will differ according to the plan opted for .
Maturity Benefit : Benefit paid when the term of the policy is complete and the life assured is alive .
The Maturity Benefit differs according to the plan opted for by the policy holder .
Death Benefit : Benefit paid in the event of the death of the life assured during the term of the policy .
The Death Benefit differs according to the plan opted for by the policy holder .
Paid – up Value : If the policy holder stops paying premium after a minimum required premium paying term . The Sum Assured is proportionately reduced to a value which is the Paid –up Value .
The reduced Sum Assured is called as Paid – up value . A policy acquires paid –up value after 3 full tears premiums have been paid .
Surrender Value (SV) : Amount paid to the policy holder in case the customer decides to discontinue the policy before the end of the term .
SV in Traditional plans : 35 % (Total premium paid – 1st year premium – Rider premium – Extra premium ) + Cash value of bonus accrued till date .
SV in ULIP plans : A certain percentage of the fund value depending upon the number of years completed since the policy start date .
If the policy holder surrenders the policy the life cover will crease to exist and the insurance contract comes to an end . Not all insurance policies have a surrender value.
Free- Look Period : Post policy issuance , the policy holder has the option to return within 15 days from the date the policy receives the policy .
This option gives the policy holder a change to review whether the product meets his / her needs .
Insurance Company (Insurer ) : The insurance company undertakes the risk on the life of the insured individual . It agrees to pay the Sum Assured (and other benefits if any )either , on the death of the life insured or on policy maturity.
The Life Insurance Company reserves the right to accept or reject the proposal of life insurance on an individual’s life.
Advisor (Agent / Intermediary ) : An advisor licensed by IRDA is associated with the life insurance company as an agent. Advisor sources policies for the company keeping in mind the needs of the clients.
Advisors are paid a specified percentage as commission for the amount of business sourced.
The other commonly used Life insurance terminology and definitions include:
Proposer : Person who enters into a contract with the life insurance company.
The proposer undertakes to pay the premium of the life insurance policy.
Parents , Grand parents and Spouse can be the proposer for Life Insurance . The proposer and life assured can be the same , in which case , the nominee needs to be specified . If the proposer and life assured are two different individuals , the proposer himself / her self is the nominee.
Life Assured (Insured) : Person whose life has been insured . Depending on his / her survival or death , the policy benefit becomes payable.
An insurable interest should exist between the proposer and life assured.
Nominee (Beneficiary) : Person to whom the money assured under the policy is paid on the death of the policy holder.
A nominee may be a minor by age.
Appointee (Care Taker) : When the nominee of the insurance claim is a minor , then an appointee is appointed by the policy holder .
The appointee is not a beneficiary . The appointee losses his status when the nominee become a major.
Assignee : An entity to whom the ownership , rights and the benefits under the life insurance contract are transferred by the proposer either for a monetary consideration or out of love and affection.
Assignment can be either absolute or conditional . Assignment cancels nominations. Assignment supercedes a will . The proposer continues to pay the premium post assignment.
Types of Insurance / Meaning
Pure Term : Plan under which the Sum Assured is payable only on the death of the life assured. Maturity Benefit is not available .
Pure Endowment : Plan under which the Sum Assured is payable when the life assured survives the entire term. Death Benefit is not available .
Endowment : This plan is a combination of pure term and pure endowment . It provides benefit on the death of the life assured or on the maturity of the plan which ever is earlier.
Gives complete protection to the family by providing benefits either on death or maturity.
Anticipated Endowment : Plan which provides both Death or Maturity
Benefits along with liquidity a pre – specified percentage of Sum Assured is paid at regular intervals during the term of the policy .
Provides liquidity from time to time . Incase the life assured dies during the policy term , the nominee receives the entire Sum Assured in spite of having received periodic payouts earlier.
Whole Life : Plan which continues throughout the life of the life assured . It provides the benefits to the nominee on the death of the life assured.
The policy holder has an option to choose the premium payment term as per his capacity.
Annuities : Annuities are popularly known as Pension plans. These provides annuities or pension to the life assured once he / she attains retirement age.
Annuities are paid by the insurance company either immediately or are deferred to suit the needs of the customer .
ULIP : Plan which provides the policy holder an opportunity to invest in the stock markets and other financial instruments . These plans also provides a life insurance cover.
ULIPs provide numerous flexibilities to the policy holder .
Kid’s Plan : Plan which is designed exclusively to cater to the educational requirements of kids .
These plans offer different payout options to suit the specific requirements of the kid’s education . A ULIP variation of these plans is also popular .
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