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Life insurance is filled with many terminologies which are very simple and easy for those in the profession to understand but poses a challenge for the layman policyholder. Compiled below is a list of common life insurance terminologies with their simple interpretations.

    1. Policy Owner/Policyholder – Policyholder is the person/entity who proposes the policy. The policyholder is the owner of 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. The policyholder alone can request for any changes/modifications to the policy. The policyholder appoints the nominee. The policyholder may or may not be the life insured.
    2. Life Insured – He is the person whose life is insured/covered under the life insurance policy. The life insured is the person whose untimely death can cause financial loss to the family i.e in most policies the life insured is the breadwinner of the family. The life insured and the policyholder can be the same or different persons. For eg: Ajay is the policyholder and life insured under a term life insurance policy. Ajay also has an endowment plan where he is the policyholder and his son Sai is the life insured. An important point to note is that even though the policy covers the life insured’s life, the insurance company would proceed with any changes to the policy only on the basis of the policyholder’s instructions (applicable for policies where policy owner and life insured are different). 
    3. Nominee/Beneficiary – The nominee’s role is to receive the death benefit 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. The policyholder can change the nominee anytime during the policy tenure. One can appoint more than one nominee. The nominee can also be a minor in which case an appointee may need to be appointed to receive the death benefit on behalf of the nominee should the life insured pass away during the minority of the nominee.  
      An important point to note is that nomination is possible only in policies where policyholder and life insured are one and the same. In case policyholder and life insured are different, a nomination is not permitted as the policyholder is there to receive the death benefit in case of death of the life insured during the policy tenure. 
      Also Read: - Which Deaths Are Not Covered by Term Insurance Policy
    4. Premium – Premium is the amount paid by the policyholder to the insurance company to enjoy the policy benefits and to keep the policy active. The premium amount for a policy is arrived at on the basis of age, gender, personal habits, medical history, occupation, hobbies, coverage amount, etc of the life insured. The premium is payable on the due date or within the grace period failing which the policy lapses.
    5. Premium Mode – This is the frequency in which premium is payable. Life insurers offer annual, semi-annual, quarterly and monthly modes of premium payment. Monthly modes are generally offered only under electronic clearing system (ECS) or other auto-debit facilities. 
    6. Due Date – The date on which the premium is payable by the policyholder.
    7. Grace Period The number of days given after the due date to pay the premium. 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 death benefit is payable minus the unpaid premium. If the premium is not paid by the end of the grace period, the policy lapses and insurance coverage ceases. 
    8. Payment Term – While buying a policy, you can choose a premium payment term as per your choice. The various premium payment terms that you can choose from are, are as follows: 
      • Single Pay – At the inception of the policy you need to pay a lumpsum amount for the entire tenure of the policy.
      • Short Pay – The payment tenure is less than the policy tenure. You need to pay only for a limited number of years. For eg: a premium payment tenure of 5 years with a policy tenure of 15 years.
      • Regular Pay – In this the payment tenure is equal to the policy tenure. For eg: A policy with payment and policy tenure as 20 years. The premium payment has to be made for the entire tenure of the policy. 
    9. Policy Tenure – This is the period/duration/term for which insurance coverage is provided under the policy. It can be for a fixed number of years like 15, 20, 25 years or up to a specific age of the life insured such as up to age 60, up to age 65, etc. The policy tenure can also be for the entire life in case of a whole life policy. 
    10. Maturity Date – This is the date up to which insurance coverage is provided under the policy. On the maturity date the insurance coverage ceases, the policy comes to an end and the maturity benefit (not applicable for term insurance) is payable to the policyholder. 
    11. Maturity Benefit – The maturity benefit is the amount payable to the policyholder on the maturity date. It is not applicable for term life insurance policies. For traditional policies, the maturity benefit is usually the amount guaranteed at inception plus any accrued bonuses and loyalty additions if any. In ULIPs it is usually the policy fund value. 
    12. Survival Benefit – The survival benefit is the periodic payouts made at predefined intervals in case of money back policies. 
    13. Sum Assured - It is the insurance coverage amount or the amount for which one is insured for. The thumb rule is to choose a sum assured which is 10-12 times your annual income plus your outstanding liabilities. The sum assured is payable by the insurance company to the nominee in case of death of the life insured or happening of an insured event during the policy tenure. 
    14. Death Benefit – The death benefit is the amount payable by the insurance company in case of death of the life insured during the policy tenure. Is it the same as the sum assured? For term policies, yes. However, for other policy types, the death benefit may include in addition to the sum assured, accrued bonuses and loyalty additions. 
    15. Riders – Riders are add-on benefits that can be attached to the policy for enhanced and optimum insurance coverage. Riders can be purchased during the inception of the policy or added subsequently during policy anniversaries. The common types of riders are:
      • Accidental death and dismemberment rider
      • Total and permanent disability rider
      • Critical Illness rider
      • Waiver of premium rider
      • Term rider 
    16. Paid-up Value – When a policy is made paid-up, the policyholder is no longer obliged to pay premiums. The company reduces the life insurance coverage (sum assured) in proportion to the premiums paid. For eg: In case the policy and premium payment term is 20 years and Sum Assured is Rs 10 lacs and after paying 5 full premiums, you wish to make your policy paid-up then the paid-up Sum Assured will be 5/20 of 10 lakhs i.e. Rs 2.5 Lacs. This reduced sum assured is payable as death or maturity benefits. All other benefits are also payable as per the reduced sum assured. Paid-up concept is not applicable for term policies. 
    17. Free Look Period – This is a facility provided to all new policyholders. The free look period is typically a period of fifteen days from the date of receipt of the policy document during which the policyholder can review his decision and return policy if he feels that the policy terms and conditions are not as per his expectations or for any other reason. The policy owner 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. 
    18. 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. For eg: suicide in the first policy year, death caused due to driving in an intoxicated state, etc.
      Also Read: - Best Single Premium Policies in India 
Sindu Ramankutty has 10 years of Life Insurance Operations and Customer Service experience. She has worked with two leading private life insurers. She has a PGDBM (General Management) from Narsee Monjee Institue Of Management Studies (NMIMS) Global Access, Licentiate from Insurance Institute of India (III) and ALMI from LOMA.