Insurance Simplified: Decoding Common Term Life Insurance Terms

Life insurance is an important tool when it comes to financial planning and security of your loved ones. It acts as a shield for them to manage their livelihood when you are not around.

When looking for a life insurance cover one comes across terms which could be hard to understand. In order to make make a prudent decision regarding purchase of your life insurance, you must know what they mean. And, to make them easy and simple to understand, we decode some commonly used terms in term life insurance.

1. Nominee
Nominee is the person whom the policyholder nominates for receiving the sum assured after his/her death. Nominee could be the wife, children or parents of the policyholder. The nominee needs to claim the life insurance after the demise of the policyholder.

2. Maturity age
It's the age of the policyholder at which the term insurance policy ends. For instance, you buy a term insurance plan at the age of 27 years and it covers you for a period of 60 years. In this case, your policy’s maturity age will be the day you turn 87 years old.

3. Premium payment frequency
You can pay the premium of the term insurance policy as per your convenience. These options vary from insurer to insurer. Usually, there are three payment frequencies:

Single pay: A policyholder can pay premium for the entire duration of the plan in one go.

Regular pay: You can pay the premium till the end of the policy term in installments - monthly, quarterly, half-yearly or annually.

Limited pay: You can pay the premium for a fixed period of time and not till the end of the policy term. For example: 5 years or 10 years or 20 years.

4. Riders
These are extra paid-up benefits that an insured person gets at the time or after buying a term insurance plan. Insurers offer various riders such as accidental death benefit, critical illness, disability cover, etc.

5. Death benefit
Death benefit is the amount that the nominee of the policyholder gets in case of the death of the policyholder.

6. Survival/maturity benefit
It is the amount a policyholder receives at the end of the policy term. In case, the policyholder survives until the end of the policy, the policyholder may get survival benefits. These benefits may include accrued bonuses, returns on investment, the sum assured.

7. Free-look period
Suppose you buy a new insurance policy and you receive the policy documents but you find that the terms and conditions are not up to your expectations. In such a scenario, you can return the policy and get a refund. You can exercise this option within 15 days of receiving the policy document. This is called a Free Look period. You have to communicate with your insurer in writing about it. The premium refund will be adjusted for proportionate risk premium for the period on cover, expenses incurred by the insurer on medical examination, and stamp duty charges.

8. Grace period
It is the maximum number of extra days allowed by the insurance company to pay your life insurance renewal premium after the due date. If you make annual payments, the maximum grace period available for renewal is 30 days. However, if you make monthly payments, you are eligible for only 15 days of grace period.

9. Surrender Value
If the policyholder decides to discontinue the plan before the maturity age, the life insurance company pays an amount to the policyholder, this is called Surrender Value. However, you must clearly read the terms and conditions whether a plan offers any surrender value or not. And if there is a surrender value, how much it will be. Not all life insurance plans have surrender value.

10. Paid-up Value
In case the policyholder can not pay the premium after a specified period of time, insurance companies can offer them coverage for a reduced sum assured subject to the premium that the policyholder paid till date. However, not all life insurance plans have paid-up value as a feature.