Important life insurance terminologies

Life insurance is filled with many terminologies which though simple for those in the profession to understand but may pose a challenge for the layman policyholder. Compiled below is a list of common life insurance terminologies with their simple interpretations.

Policy owner/Policyholder – Policyholder owns the policy. He is responsible to pay the premiums and all benefits (maturity, survival, surrender) are payable to him only. The insurance company communicates with the policyholder only. He alone can request for any changes/modifications to the policy. The policyholder appoints the nominee.

Life insured – He is the person on whose life the insurance coverage is provided. The life insured and policyholder can be the same or different persons. For eg: Ajay is the policyholder and life insured under a term policy. Ajay also has an endowment plan where he is the policyholder and his son Sai is the life insured.

Nominee/Beneficiary – The nominee’s role is to receive the death claim proceeds in case the life insured dies during the policy tenure. If the life insured survives the policy tenure the maturity proceeds are payable to the policyholder and not the nominee. The nominee cannot request for any changes/modifications to the policy.

Premium – Premium is the amount paid by the policyholder to the insurance company in exchange of which the insurance company provides life insurance coverage.

Mode – this is the frequency in which premium is payable. Life insurers offer annual, semi-annual, quarterly and monthly modes. Monthly modes are generally offered only under ECS or other auto-debit facilities.

Due date – The date of on which the premium is payable by the policyholder.

Grace period – The no. of days given after the due date by the insurance company to the policyholder to pay the premiums. The grace period is usually 30 days from the due date. However, for more frequent modes life Monthly it is usually 15 days. During the grace period life insurance coverage is active or in force i.e in case the life insured dies during the grace period, the benefits are payable minus the unpaid premium.

Freelook period – The freelook period is a period of 15 days from the date of receipt of policy document during which the policyholder can review his decision and return the policy if he feels that the policy terms and conditions are not what he wants or for any other reason. The policyowner has to communicate his decision in writing to the insurance company and after deduction of certain charges (proportionate risk premium for the period on cover, medical charges if any and stamp duty charges) the premium is refunded.

Surrender charge – After the freelook period, if the policyholder wishes to cancel his policy some charges known as surrender charges are applicable (for the initial few years). A term policy does not have a surrender value. For ULIPs and traditional plans, the surrender charges are very high in initial years and sometimes no amount is payable after deduction of the surrender charges.

Sum Assured – It is the coverage amount or the amount for which one is insured for. It is the amount which the insurance company agrees to pay on happening of an insured event.

Exclusions – These are the events which are not covered by the life insurance policy. The exclusions are mentioned in the policy brochures and also in the policy document.

I hope the above information has helped you better understand the various terminologies used in life insurance.