Glossary of key life insurance terms

Get quick, easy to understand explanations of finance and life insurance related terms that you might come across during interactions with accountants, financial institutions or while running your business.

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Accelerated payment of basic cover

This occurs when the basic cover amount is paid earlier than death or maturity. For example the policy may provide for the full payment of the death benefit in the event of total and permanent disability.

Accident

The term accident is sometimes defined in the policy document as follows - the accident must be caused by violent, external and visible means and cause of the injury or injuries solely and independently of any other means.

Accidental death benefit

Benefit, which provides for the payment of an additional sum (usually equal to the sum insured of the basic policy) in the event of death by an accident.

Balanced fund

A fund that maintains a balanced portfolio, generally 60% bonds or preferred stocks and 40% common stocks.

Capital Gains Taxes

Taxes that are imposed at the redemption of all capital gains.

Capitalization

The value of a fund derived by the multiplication of the fund's share price by the number of outstanding shares. Most often, this is applied in order to determine the value of the specific companies.

Date of commencement

The date on which cover begins, following acceptance of the risk by the insurer.

Endowment

A type of insurance policy which provides for the face amount stated in the contract to be payable in a fixed date or on the life insured's earlier death.

Family history

The medical history affecting the applicant's immediate family. It is to look for illness that is hereditary. Focus should be on illness where the onset is before the age of 50.

Government Bonds

These are effectively financial instruments used by the government to borrow money from the public. The rates of interest and term period of government bonds are fixed.

Hazardous avocation

A hobby that has high risk for insurance purpose. Example: A deep - sea diver or a free-fall skydiver.

Immediate annuity

An annuity where, income benefits begin one annuity period after the annuity is issued. If it is specified that benefits are paid annually, then the benefit payments begin one year after issue.

Joint and survivor option

An option on an annuity that provides that the annuity payout will continue through the lives if two people. If one of the payees dies, payments continue to the second payee throughout that payee's lifetime.

Keyman Insurance

An insurance policy that a company purchases on a key employee whose knowledge, network and experience is so essential that the untimely death of the employee will have a severe impact on the profitability of the company.

Lapse

Termination of a life insurance contract because of non-payment of premiums. If there are non forfeiture values, the policy lapses but may remain effective reduced paid-up insurance.

M & A

Mergers and acquisitions

Net Asset Value (NAV)

The value of a fund share. Determined by dividing the total value of the fund's assets by the number of outstanding shares. This value is calculated daily by the fund.

Offer-price

The price to buy one share of a specific kind.

Participating Policy

A participating policy is also known as a with-profits or par policy. A participating policy charges a higher premium than a non-participating policy. In return, the policy owner shares in the life insurance company's divisible surplus, in the form of bonus allotted to the policy. The bonus is allotted in addition to the guaranteed sum assured. This bonus is paid along with the basic sum assured.

Quality

The creditworthiness of a bond issuer, which indicates the likelihood that it will be able to repay its debt.

Redemption fee

Fee levied for selling shares of your index fund. Usually a fixed percentage of the total value of your fund.

SEBI

Securities and Exchange Board of India

TDS

An endorsement or attachment to a life insurance policy that provides additional term coverage for the amount specified. If the insured dies during this time, the designated beneficiary(ies) can receive death benefit proceeds.

UTI

Unit Trust of India

Vesting age

This is the age when the rights under the policy vests with the name individual.

Waiting Period

This applies when the benefit is payable after a specified period. For certain benefits, cover may only commence after a specified period. For example, if a diagnosis of cancer or heart attack is made within 180 days of the commencement of the policy the critical illness benefit is not payable.

Yield

Income or dividends received from a security or fund

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