Insurance is generally considered a very dry subject. Maybe due to people’s lack of knowledge, they think it’s complicated to understand. This is a Myth!!! Throughout our lives, we encounter a lot of risks or uncertainties where we feel the importance of having insurance. It could be the case of an eventuality within a family that life throws your way or a dent in savings which any medical emergency brings. If you’re deciding to get the protection that insurance offers for yourself or your loved ones, here’s a guide which will help you understand the terminologies in a simplified manner.
Life Insurance Terms:
Let us start with the two most important terms in insurance;
Another name for the Insurance Company is an Insurer who offers insurance products for the customers.
For E.g.: HDFC Life Insurance, ICICI Prudential Life, Bajaj Allianz General Insurance, etc.
This is the life assured in the policy on whose name the insurance policy is purchased from the Insurer.
It is a person who proposes the insurance policy towards his life, his spouse’s, dependent children’s and/ or parents’. He is the one who pays for the policy and so is the owner of the policy. In certain cases, the proposer and the life assured are the same. The proposer gets the tax benefit on the premiums paid.
This is the person that’s nominated by the life assured/insured at the time of buying the policy. He is the person who receives the benefit in case of death of the insured person. The nominee is usually the spouse, children or parents.
It is the person who will receive the benefits in the policy in case of death of the life assured. Generally, this is common under child insurance plans. At any given point of time, the policy shall either have a nominee or a beneficiary. It cannot have both at the same time in the policy.
It is the person who’s appointed in the policy when the beneficiary is a minor. The appointee acts as a guardian till the beneficiary becomes a major.
This is the amount of cover which is paid to the nominee by the Insurer if the insured person dies during the policy’s tenure. For example: The sum assured in a term insurance policy is Rs. 1 Crore. The policy’s tenure is 30 years for a non-smoker male, aged 30 years. Suppose, there is an untimely death of the person at the age of 55 years (at the 25th year of the policy’s tenure), the nominee shall receive the proceeds of Rs.1 Crore which is the sum assured.
This is the amount of consideration that’s paid by the insured or the policyholder to the Insurer against a policy which is purchased. The amount is paid to keep the policy inforce and enjoy the continuity benefits.
Premium payment Mode/Frequency:
The premium payment mode available with life insurance is Regular Pay, Limited Pay, Single Premium. The selected premium frequency for payment could be monthly, quarterly, half-yearly or yearly.
- Regular Premium Payment - You can pay premium regularly throughout the policy’s term – monthly, quarterly, half-yearly or yearly.
- Limited Premium Payment – You can choose to pay the premiums for a limited amount of time. In this option, you do not pay till the end of the policy’s term, but for a certain pre-fixed number of years. For example, 10 years, 15 years, 20 years, and so on.
- Single Premium Payment – You can also choose to pay the premium for the entire duration of the plan as a Lumpsum in one single transaction.
This is an additional feature that’s available in the policy which increases the comprehensiveness of the policy with its wide coverage. This feature comes with an extra premium.
It is the amount which is received by the nominee/ beneficiary as the case may be due to an uncertain demise of the proposer/life assured during the term of the policy. It is the payment or other benefits that a beneficiary receives on the death of the insured. This term is usually applicable to life insurance policies or pensions.
Free Look in Period
In case you do not agree to any of the policy’s terms and conditions, you have the option of returning the policy to the Insurer by stating the reasons within 15 days from the date of receipt of the policy.
The free look period for policies that’re purchased through distance marketing/online is 30 days. Submit a written request along with the original policy documents to the Insurer. They shall arrange for a refund of the premium. This is subject to deduction of the proportionate risk premium for the period which is covered, the expenses incurred on medical examination, if any and stamp duty.
Almost all life insurance policies have a grace period, with most of them lasting 30 days from the original due date. However, if you fail to make the premium payment within the grace period, your life insurance policy will lapse, and you will need to have it reinstated. For the Monthly Mode, the grace period is 15 days from the due date.
If for any reason, the policy is inactive/lapsed, the policyholder has a chance to revive the lapsed policy within 2 consecutive years of lapsation. This is subject to the terms and conditions that’re specified by the Insurer from time to time. Once the policy is revived, the policyholder is entitled to receive all contractual benefits.
Premiums paid by the Proposer (an individual or HUF) under the life insurance plan are eligible for tax benefits under Section 80C of the Income Tax Act, 1961. The proceeds thereof under the life insurance policy are exempt from tax under Section 10 (10D) of the Income Tax Act, 1961, subject to the conditions specified therein. (Please note that the above-mentioned benefits are as per the current tax rules.)
I am sure the basic life insurance terminologies that’re cited above will be helpful when you explore your needs for insurance protection. For any queries, please get in touch with Team 5nance. Call us on 022-67136713 or simply email at email@example.com