You need to know the basic terms in life insurance to understand the various stipulations in your policy. Some of the words that you need to be familiar with are as follows:
The person who pays for the life insurance policy is the policyholder or the policy owner.
The person whose life is insured under the policy is the life assured or the insured person. This may or may not be the same as the policyholder.
For example, if you buy the policy to cover your spouse’s life, then you are the policyholder and your spouse is the life assured. If you insure your own life, then you are both the policyholder, and the life assured.
It is the rupee value of the insurance purchased. Your insurer guarantees to pay this amount to your nominee if a specified event such as death of the life assured occurs during the policy period.
The nominee is the person whom the insurance company pays when an unwanted event occurs.
It is the duration for which your life cover remains valid. Provided the premium payments are up-to-date, your insurer will pay the coverage amount to the nominee if an eventuality occurs during this period.
Maturity age is the age of the life assured at which the life cover ends.
Premium is the money you have to pay to the insurer to buy the life insurance. You can pay it as a lump-sum or at periodic intervals. If you stop paying the premium, your insurer will deny the benefit due to your nominee in case of an eventuality.
Riders allow you to increase the scope of your coverage for a nominal extra payment. Such add-ons are optional. Some of the standard riders include:
- Accidental death benefit, offering additional payouts in case of accidental death
- Accidental disability rider, providing premium waiver if a total or permanent disability occurs due to an accident
- Critical illness cover, paying a lump-sum amount upfront on the diagnosis of life-threatening ailments covered under the plan
It is the sum the nominee receives in case of the insured person’s unfortunate demise.
If the life assured remains alive beyond the policy tenure, the insurer pays the survival/ maturity benefit. Life insurance products featuring investment components generally provide this benefit.
It is the time-frame beyond the due date that the insurance company allows for premium payment. If the policyholder fails to pay the premium on the due date, paying the outstanding sum within this time keeps the life cover in-force. If the premium remains unpaid in the grace period, the policy can lapse, ending the coverage.
You may decide to discontinue your policy before the policy tenure ends. Then the amount the insurer pays to you is called the surrender value.
For example, suppose you buy life insurance for yourself with ₹ 50 lakh coverage and 20 years’ policy tenure. You are thus the policyholder as well as the life insured.
Say, the yearly premium amounts to ₹ 20,000. You add an accidental death rider for ₹ 5 lakh for an extra ₹1,000. Then you have to pay ₹ 21, 000 to your insurer every year for your coverage.
Suppose you name your spouse as the nominee. If a tragic incident occurs within 20 years, your insurer will pay your spouse ₹ 50 lakh. In case accidental death occurs, your spouse will receive ₹ 55 lakh as death benefit.
If you remain alive after 20 years, you will get the maturity benefit.