Have you felt confused while reading about insurance because of its complicated terms? Don’t worry; most people don’t understand half of what they read on their insurance policy’s terms!
But, learning and understanding insurance and its basic terms is essential in today’s world as insurance has become a crucial aspect of our day-to-day lives. Not being aware of insurance terms might prevent people from getting insurance because they feel intimidated by the jargon. And even if you do get insurance, you may not know how to make the best use of it because you lack knowledge.
So, it’s time to educate yourself! Here are some insurance terms everyone must know:
Policy Tenure
Policy tenure, also known as policy duration or term, is the time frame for which the insurance policy is in effect, typically ranging from a year to a lifetime. If a person’s life is insured and he dies within that time frame, the insurance company will pay the insurance amount to the nominee.
Beneficiary/ Nominee
A nominee is the person who gets the insured money in case the life insured dies within the policy term. This is generally a family member or a close relative selected by the policyholder. The nominee can be added later if the policyholder has not decided to do so at the time of buying the policy. However, the decision has to be made during the policy’s term and before it matures.
Policyholder
A policyholder is someone who buys the insurance policy and pays the premiums. Thus, this person owns the policy.
Premium
In return for getting insurance, the policyholder is supposed to pay a fixed fee to the insurance company. This is a vital part of the insurance policy. Insurance companies may offer different payment methods, such as annually, quarterly, and monthly.
Life Assured
The life assured refers to the individual for whom the insurance is purchased. There’s a difference between being the policyholder and the life assured. If you buy insurance for your spouse or parent, you will be the policyholder, while your spouse or parent will be the life assured. Conversely, if you purchase insurance for yourself, you will be the policyholder and life assured.
Sum Assured
The sum assured is the promised amount the beneficiary will receive in the event of the death of the life assured during the policy term. The policyholder decides this amount at the time of buying the insurance policy.
Claim
If the life assured dies during the policy term, the nominee must file a claim with the insurance company. This is called the claim process. Only after filing the claim will the nominee receive the sum assured.
Maturity Benefit
The amount received at the end of the policy tenure by the policyholder is called maturity benefit.
Riders
The policyholder can add more options to their existing life insurance policy beyond what is stated in the policy. These are called riders. For example, they may add an accidental death compensation package or a serious disease compensation package, to name a few. The policyholder must pay an extra premium to pay for riders when buying the insurance policy.
Death Benefit
The total amount paid to the beneficiary by the insurance company in the event of the death of the life assured during the policy tenure is known as the death benefit. Generally, this amount is the same as the sum assured. However, if riders are involved in an insurance plan, the death benefit can be more than the sum assured.
Free Look Period
The free look period is the duration in which you can terminate the insurance policy if you are dissatisfied with it. After reducing the medical costs (if any), risk premium, and stamp duty charges, the premium will be refunded to you. The duration of this will be mentioned in the insurance policy document.
Exclusions
Not all insurance policies cover everything. Certain things are not covered by the policy, and these are called exclusions. The insurance company will not pay for the exclusions even if the client makes a claim. One example of exclusions is in case of a suicide, where the insurer won’t be responsible for paying the total amount according to the policy.
Lapsed Policy
If the policyholder does not pay the premium even after the grace period, the insurance policy expires, resulting in a lapsed policy.
Grace Period
The grace period is the extended period insurance companies offer policyholders after the premium payment deadline. The insurance policy’s protective cover will continue if the balance premium sum is paid within the grace period.
Revival Period
If you are unable to pay the premium within the grace period, your insurance policy will be canceled. However, you have the option of reactivating the lapsed policy if you wish to continue. There is a time limit for reactivating the policy after the grace period is over, which is referred to as the revival period.
Payment Term
The alternative ways you can pay the insurance company’s premium are called the payment term or the payment mode. Insurance companies allow regular, limited, and single-pay payment methods.
Insurance Agent
A person selling insurance policies on behalf of an insurance company is called an insurance agent. There are two types of insurance agents: non-exclusive and exclusive. Non-exclusive agents sell insurance policies from many carriers, while exclusive agents sell policies from one specific insurance company.
Coverage
Various types of advantages or protections offered by insurance policies are called coverage. Life insurance, auto insurance, and homeowners’ insurance are the most common types of insurance coverage.
Declarations Page
This page contains all the essential information about your insurance policy, such as the policyholders’ name, address, premiums, limits, deductibles, other details on the coverage, etc. The declarations page is the part of the policy that describes what is insured.
Policy Jacket
A policy jacket is a document with all the information about a specific insurance policy. It is the legal contract that underlies the declarations page. Exclusions, perils, coverages, terms, and conditions, etc., are mentioned in this. However, the contents of the declarations page or endorsements are not included in the policy jacket.
