Buying a term insurance plan is considered an important step in financial planning. It becomes a safety net for your family from a financial point of view after your death. Among the available life insurance plans, the term insurance plan is the most preferred due to its simplicity and low cost.
But reading and comprehending the insurance policy document may be difficult due to the use of technical terms. If you are buying a term insurance plan, it is important to understand the insurance policy terminology.
Here is a simplified list of term insurance terminologies for your benefit.
If you've been looking at term insurance, you've probably seen words like term policy, policy term, sum assured, or names like Max Life Term Insurance. They can be confusing at first. Here's what the most common ones mean in simple Indian English.
Term policy is simply referred to as term insurance. Term insurance is a kind of life insurance cover that covers you for a certain number of years. In the event of death during that period, your nominee will receive the sum assured. In case you are alive at the end of the term, there is no benefit from a pure term policy.
Now let's look at a few terms in more detail.
Maximum term is the maximum age till which you will be covered in a term insurance plan, this may differ from insurer to insurer and plan to plan. Some plans cover till age 60, while some others cover till age 75, 85 or 99.
When a plan says "coverage till age 85" or "till age 99," it is simply an indicator of when your life cover period will end. Once you cross this age, your insurance policy will terminate.
Life cover is the sum of money that your family will receive on the unfortunate event of your death during the life cover period. In case of a life cover of ₹2 crore, your family will receive ₹2 crore.
There are many more terms you'll come across. Here's a list of the important ones:
The accidental death benefit rider provides an extra payout in case the life assured dies due to an accident. This is paid in addition to the base sum assured. For example, if your policy covers ₹1 crore and you have a ₹50 lakh accidental death rider, your nominee may receive ₹1.5 crore if death occurs due to an accident.
The accidental disability rider provides financial support if the life assured suffers a total and permanent disability due to an accident. Depending on the terms, this benefit may be paid as a lump sum or in regular instalments. It helps replace lost income and manage lifestyle changes due to disability.
A term insurance claim is the formal request made by the nominee to the insurance company after the death of the life assured. The insurer reviews the request and, if all conditions are met, pays the sum assured.
The Claim Settlement Ratio indicates how many claims an insurance company has settled against the total claims received in a year. A higher claim settlement ratio (CSR) suggests better reliability and trustworthiness of the insurer.
A critical illness rider offers additional protection by paying a lump sum amount if the life assured is diagnosed with a serious illness listed in the policy, such as cancer, heart attack, or stroke. This benefit helps cover treatment costs and loss of income during recovery. The payout is made on diagnosis and does not depend on death.
Commencement date is the date on which the term plan comes into force. It is the date from which the life coverage is available to the life assured.
Death benefit is the amount that the nominee receives if the life assured dies during the policy term. It is usually equal to the sum assured, but may be higher if additional riders are included.
Dedicated Claim Assistance is a specialised support service offered by Policybazaar that helps nominees or families smoothly file and process claims after the death of the life assured.
These are specific situations or causes of death that are not covered under the policy. Common exclusions include death due to suicide in the first year, participation in hazardous activities, or death due to intoxication.
Financial Surrogates is a concept where the insurer will require you to present the credit card bills, bike or car registration documents. This will act as proof of income for individuals
The free look period is a short time frame (usually 15 to 30 days) during which the policyholder can cancel the policy without any penalty if they are not satisfied with the terms of the policy.
Grace Period refers to the extra time given (usually 15–30 days) to pay the premium after the due date without losing the policy benefits. If the premium is paid within the grace period, the policy continues without lapsing.
HLV stands for Human Life Value. The HLV calculator helps estimate the ideal sum assured for term insurance based on income, expenses, liabilities, and goals. It ensures that your family’s lifestyle is maintained even in your absence.
The life assured is the person whose life is covered under the insurance policy. If this person passes away during the policy term, the sum assured is paid out. In many cases, the life assured and the policyholder can be the same person.
Maturity benefit is the amount paid to the policyholder if they survive the policy term at the end of the term. However, most pure term insurance plans do not have a maturity benefit, as at the end of the maturity date, the policy terminates, since they are designed only for life cover.
MWP Act stands for Married Women’s Property Act. If a term insurance policy is bought under this act, the payout goes only to the wife and/or children and is legally protected from creditors or business liabilities.
The nominee is the person selected by the policyholder to receive the policy benefits in case the life assured dies during the policy term. The nominee is usually a close family member like a spouse, child, or parent.
Premium payment modes define how the premiums are paid. There are three common types:
If the premium is not paid even within the grace period, the policy becomes inactive or “lapsed.” A policy lapse means there is no coverage, and the nominee won't get the benefit unless the policy is revived.
A lapsed policy can be brought back to life by paying the due premium and applicable charges. The revival period during which you can revive your policy is subject to conditions and time limits set by the insurer.
Policy term refers to the duration for which the insurance policy remains active. The policy term can range from a few years to several decades. If the life assured dies within this period, the insurance company pays the claim amount.
The policyholder is the person who buys the term insurance policy and pays the premiums. This person owns the policy and has full control over it, including the right to choose the nominee or cancel the policy.
Riders are extra features or add-ons that can be added to a base term insurance policy for enhanced protection. Important term insurance riders include critical illness cover, accidental death benefit, and premium waiver on disability.
Sum assured is the fixed amount that the insurance company agrees to pay to the nominee if the life assured dies during the policy term. It acts as the financial safety cover promised by the policy.
Surrendering a policy means voluntarily ending it before the end of the term. Term plans usually don’t have a surrender value unless it's a return of premium variant.
A terminal illness benefit pays the full or part of the sum assured in advance if the life assured is diagnosed with a terminal illness (a condition that is likely to lead to death within a short time, such as advanced cancer). This is also called an accelerated death benefit and helps the policyholder manage medical and personal expenses in the final stages of life.
Premium is the amount that the policyholder pays to the insurance company to keep the policy in force. Premiums can be paid regularly (monthly, quarterly, annually) or all at once, depending on the plan.
The waiver of premium rider ensures that all future premiums are waived off if the policyholder becomes permanently disabled or critically ill (as per policy terms). The policy remains active, and the life cover continues without the need to pay further premiums.
Most individuals choose their term policies based only on their cost. Nevertheless, it is important to be aware of what you will get in return for your money, which can be achieved by having knowledge of the jargon used in the insurance industry. The advantages include:
Suppose you have bought a ₹1 crore term insurance policy and made your spouse the nominee. In that case, you are both the policyholder and the life assured. In case you meet with any accident or mishap during the term of the insurance, your spouse will be able to claim the death benefit. If there is a rider attached to your policy, such as an accidental death benefit, your family will receive more than ₹1 crore, depending on the rider terms.
Now that we have understood the different term insurance terminology, here is what is term insurance and why you should buy term insurance plans:
It becomes easier for you to choose a policy when you know important insurance terminology.
In case any of the above term insurance terminologies is confusing for you, our Policybazaar insurance advisors are always a phone call away. We will assist you in selecting a plan according to your needs, income level, and family size.
Knowledge of the basic terms used in life insurance is essential to make good use of and benefit from your life insurance policy. Spend some time learning about these terms as they will help you make an informed decision.