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.
- 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.
- 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).
- 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
- 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.
- 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.
- Due Date – The date on which the premium is payable by the policyholder.
- 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.
- 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.
- Accidental death and dismemberment rider
- Total and permanent disability rider
- Critical Illness rider
- Waiver of premium rider
- Term rider
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