If you want to buy the right life insurance plans for your investment portfolio, it is important to recognize the basic terminology that helps you understand policy benefits and features. In the absence of that knowledge, you may not be able to make an informed buying decision. The best life insurance plans are best understood with regards to their terminologies, such as maturity benefit, free-look period, grace period, etc.
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So, if you want to know more about the types of insurance policyand what it means, you must first learn about the following terms that will help you buy the right life insurance plans.
Policyholder
In the context of life insurance plans, a policyholder is an individual who pays the premium for the policy. However, while they may pay for the policy, they may or may not be the life assured.
Life Assured
The person who is protected by the life insurance plans is known as the life assured. When this individual dies due to an unfortunate event, the nominee becomes eligible for the death benefit.
It is important to understand the difference between life assured and the policyholder. For example, when a father buys a policy for his son, the father becomes the policyholder, but his son is the life assured.
Premium
The premium of life insurance plans is the amount that you pay to the insurance provider to keep your policy active throughout the term. In case you fail to pay the premium amount within the due date or the grace period, your policy will lapse.
Sum Assured
This is the amount that the policy beneficiary will receive in case something happens to the life assured. Therefore, you need to be careful in choosing the sum assured as it is supposed to replace the income they will lose in your absence. Ideally, this figure should be at least 15-20 times your annual income.
Policy Term
Tenure/duration of the life insurance plans is known as policy term. Depending on the type of policy and the insuranceprovider’s terms and conditions, the tenure of the policy may differ.
Policy Beneficiary
A policy beneficiary is a person who has been nominated by the policyholder to receive life insurance payouts as well as other benefits, in case of the life assured untimely passing.
The nominee or the beneficiary is declared at the time of buying the policy. You can name anyone in your family, be it your spouse, children, or parents, who may be financially dependent on you.
Policy Termination/Lapsed
When you are unable to pay the premium amount to keep the policy active, it gets terminated or lapsed due to non-payment. This usually happens when you are unable to pay even after the grace period is over. Some insurance providers allow the policyholders to reinstate their policies if outstanding premiums are paid in full.
Grace Period
This is the extended period given by the insurance company to pay the premium amount past the due date. If the policyholder is unable to pay the outstanding amount within the grace period, the policy terminates or lapses.
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Death Benefit
This is the total benefit that the nominee is paid after the death of the life assured. However, it would help if you kept in mind that the sum assured is not always the same as the death benefit. In some cases, the latter may be higher, especially if the policyholder had bought a rider cover as well. So, the death benefit will be cumulative of the two.
Maturity Benefit
This is the amount paid to the life insurance plans holder upon completion of the policy term.
Free-look Period
If, after making the purchase, you feel that the terms and conditions of the policy are not favourable to you, you are allowed to return the policy for a full refund. However, you must do so within the free-look period, which is usually 30 days from the date of purchase. The premium is refunded after deducting the stamp duty charges, cost of medical examination, and risk premium.
Exclusions
These are the things that are not included in your life insurance plans. If you make a claim based on these exclusions, then the insurance company has the right to deny you the benefit.
Revival Period
The revival period falls after the grace period within which you are able to revive your policy even after non-payment of premium. However, once you pass the revival period, your policy becomes permanently terminated.
Claim Process
In case the life assured passes within the policy term, the nominee can start the claim process to receive the death benefit.
Add-On Riders
Riders are add-ons that you can add to your life insurance plans to expand its coverage. These are optional and work wonders in securing you and your family against life’s unpredictable events.
The first step in buying life insurance plans is to learn about these basic terms. You must also browse the website of reputed insurance providers, such as Max Life Insurance, to review the policies and understand their terms and conditions before making an investment.
