Life insurance is a safety net that keeps your family financially protected in your absence. Rightly so, it is an integral part of financial planning. There are different types of life insurance policies available today with term life insurance being the most popular one.
Term life insurance is one of the simplest and most cost-effective insurance plans. That being said, most people get overwhelmed with the complex jargon and technical phrases used in insurance policy contracts. It is important to be aware of such terms to make a well-informed decision while buying a policy. Here’s a glossary of some of the commonly used expressions in term life insurance policies.
1. Policyholder: Also known as the policy owner, this is the person who owns the policy. The policyholder is the one who buys the insurance and pays regular premiums.
2. Life Assured: This refers to the person for whom the insurance is bought. This may or may not be the same as the policyholder. For example, if you buy insurance for yourself, you will be the policyholder and the life assured. But, if you buy insurance for a parent, and pay the monthly premiums for them, then you will be the policyholder while the life assured will be your parent.
3. Nominee: The nominee or the beneficiary is the person who inherits the sum assured in case the life assured passes away during the term of the policy. This is normally chosen by the policyholder and is usually a family member or a close relative.
4. Sum Assured: This is the amount that the insurance company pays to the nominee on the death of the life assured. For example, let us assume that you buy a term life insurance policy for yourself and nominate your wife as the beneficiary. You will be required to fix a sum assured at the time of purchase. Let us say that the sum assured is ₹ 1 crore. Now in the unfortunate event of your death during the tenure of the policy, your wife will receive the sum assured of ₹ 1 crore from the insurance company. The sum assured is also sometimes referred to as the cover.
5. Policy Term: This is the period for which the insurance policy is active or valid. This period can differ from policy to policy and can range from anywhere between a year to a lifetime. Let us say that the policy term for an insurance policy is 50 years. Now if the person who is the life assured for the policy dies during this period, the insurance company will be liable to pay the sum assured to the nominee. This is also called policy tenure or policy duration.
6. Premium: This is a fixed amount that the policyholder pays the insurance company in return for insurance. You can choose between different plans of payment like monthly, quarterly, annually, etc. The premium is an important aspect of an insurance policy.
7. Payment Term/Mode: The payment term or mode refers to the different ways in which you can pay the premium to the insurance company. There are primarily three types of payment modes:
- Regular Pay: In this method, the policyholder pays premiums throughout the policy term.
- Limited Pay: In this plan, the policyholder can choose a certain period for the payment of the premium. For example, if you choose 5 years, then you have to pay premiums for only 5 years while the policy remains in force for the entire term selected by you.
- Single Pay: In this method, the policyholder pays the premium in one go. This is usually paid at the time of purchasing the insurance policy.
8. Death Benefit: The death benefit is the total sum that the insurance company pays to the nominee in case of the policy holder’s death during the policy term. This is generally equal to the sum assured. However, in insurance plans where riders are involved, the death benefit can also be higher than the sum assured.
9. Maturity Benefit: Some policies pay the policyholder an amount in case he/she survives the policy term. This is known as the maturity benefit.
10. Riders: These are optional add-ons to your existing term life insurance policy. They are over and above the terms of your policy. They can be benefits like an accelerated critical illness pack or an accidental death benefit pack. The policyholder is liable to pay extra for riders at the time of buying the policy.
11. Claim: If the life assured dies during the tenure of the policy, the insurance company does not directly pay the sum assured to the nominee. You are required to file a claim to the company, after which you receive the coverage.
12. Free Look Period: Imagine you buy a term life insurance today, but change your mind about it later. An insurance policy usually comes with a free look period which is the duration within which you can terminate the policy without paying penalties. This period can differ from policy to policy.
With our top-selling1 term plan, ICICI Pru iProtect Smart, you can get your family insured with ₹ 1 crore cover at premiums as low as ₹ 540/- p.m.2a The policy pays out on diagnosis of terminal illness3 and provides premium waiver in case of permanent disability3. You can also opt for additional protection against 34 critical illnesses4 and death due to an accident5.
ADVT No.: W/II/0914/2019-20.