A term life insurance policy gives you the safety net to keep your family financially protected even in your absence. Therefore, the financial advisors and insurance experts recommend having it in your portfolio. Amongst the host life insurance policies available in the market, many people prefer buying term insurance mainly because it has the most inexpensive premium. Also, it is the most straightforward insurance plan.
While it is easy to purchase a term plan online, many people find it hard to understand the various term plan-related jargon mentioned in the policy documents. Here is a glossary of some of the most common terminology associated with term insurance plans.
A policyholder is also sometimes referred to as a policy owner. It is the person who purchases/owns the policy and pays the premium regularly.
- Life assured
Many people tend to get confused between life assured and policyholder and often use the terms interchangeably. However, policyholder and life assured are not always the same. The life assured refers to the person for whom the insurance is bought.
For example, if you have purchased a policy for yourself, you are the policyholder, and the life assured. But, if you have purchased a term plan for your parents or sibling, you will be the policyholder, but the life assured will be your parents or sibling.
It is the amount you pay the insurance company periodically in return for offering a life cover. In term insurance, the premium remains the same throughout the policy tenure. Most insurance companies give you the flexibility to choose the premium payment mode. You can pay it annually, half-yearly, quarterly, or monthly.
- Death benefit
The death benefit is the total amount that the insurance company is liable to pay to the nominee in the event of the policyholder’s demise during the policy period. Generally, this is equal to the policy’s sum assured amount. However, if you have purchased a rider, the death benefit can be higher than the sum assured.
- Maturity benefits
If you have purchased a term plan with a return of premium clause, the insurer will pay the premium you have paid upon the policy’s maturity and if you survive the policy term. This is known as maturity benefit.
- Riders or Add-ons
These are additional coverage options that you can purchase by paying an extra premium. Riders help get coverage against specific risks that are not covered under the standard term insurance policy.
- Policy term
It is the duration for which your term plan remains valid or active. When you have a term insurance policy, you have the flexibility to choose the policy term to suit your specific insurance needs; it can range from one year to 30 years or more.
The nominee is the person who receives the sum assured from the insurance company. When you purchase a term plan, you must provide nominee details in the application. You can also choose more than one nominee and define the percentage of benefits each nominee should get.
- Free Look period
This is the period during which you can terminate the policy if you are not happy with the terms and conditions or don’t want to continue with the coverage. The free look period for term insurance varies from insurer to insure, but it generally ranges between 15 and 30 days.
If the policyholder passes away when the policy is active, the nominee must file a claim application with the insurance company to get the policy benefits.
Knowing the term insurance-related words and their meaning will help you understand the terms better, and protect your family better.