Purchasing a life insurance/health insurance policy has become extremely easy thanks to technology. Gone are the days when one would have to visit an insurance company/get in touch with an agent to buy a policy. Today, we can complete all the formalities online, at the click of a button. This ease of purchase, while making the entire process quicker, has also resulted in most people buying insurance without truly understanding it.
If one had purchased a policy through an agent, chances are the agent would’ve explained the different terms associated with the policy. With people shying away from agents, there is a gap in our knowledge, which can have disastrous consequences in the future.
10 life insurance terms which we need to acclimatise ourselves with
Let’s face it. Most of us who buy insurance policies, be it life insurance, two-wheeler insurance, car insurance, travel insurance, or health insurance policy, do not truly read the documents, signing off without even glancing through the number of sheets presented to us. One reason for this is our inability to understand the terms in the policy document, for no one has the time or energy to research the same.
While we might think that it is OK to not know the terms, this could come back and haunt us in the future, at the time of making a claim. This is why we should know some basic terms associated with the policy, with 10 such terms highlighted below.
1. Policyholder– This is the individual (organisation in case of group life insurance policies), under whose name the policy is registered. Now, in essence, a policyholder is the person whose name is in the official records. However, a policyholder might not be the life assured in certain cases. The life assured/insured is the individual who is accorded protection under the plan. For example, Mr. Jay decides to buy a life insurance policy for his wife, Reema. In this case, Jay is the policyholder, with his wife being the life assured.
2. Assignment – The process wherein the insurance policy is transferred from the initial policyholder to a different individual is termed assignment. This is typically done if the original policyholder had a loan against his/her name, and had offered the life insurance policy as collateral for said loan. Under this, once the assignment has been done, the new holder of the policy will be paid the benefits if the original policyholder passes away. For example, Mr. Ray had taken a personal loan of Rs.5 lakh in lieu of his policy. Through the assignment option, he made his bank the assignee. In the event of Ray’s demise during the policy term, the bank would be paid the amount first, with any balance (after the loan is cleared) being paid to the nominee.
3. Nominee – A policyholder can choose/nominate an individual who will receive any benefits of the policy after his/her demise. This individual is termed the nominee.
4. Beneficiary – A beneficiary is an individual with a monetary interest in the policyholder’s life. He/she could be a legal heir/organisation to whom the policyholder owes money. A beneficiary may or may not be mentioned as a nominee under a life insurance plan.
5. Claim – The claim is nothing but the intimation from the policyholder/life assured/nominee to the insurance company, informing them of instances wherein the company is expected to pay the nominee/beneficiary certain benefits, as per the situation.
6. Coverage – Every policy provides certain protection to the policyholder/life assured. This could range from life cover for the policy term, protection against certain ailments, protection against accidents, etc. The coverage can vary from plan to plan.
7. Exclusions – An insurance policy need not cover all instances. There could be certain scenarios for which no protection is offered. These scenarios are termed the exclusions. One common exclusion is suicide, wherein no/limited benefits are paid if the assured commits suicide.
8. Premium – In order to avail the benefits under a plan, one is expected to pay a certain amount. This is called the premium. The premium amount varies based on the extent of cover chosen, age of policyholder/assured, etc.
9. Maturity/Death Benefit – The maturity benefit is the sum paid to the assured on his/her survival for the entire policy term. Not all insurance plans offer a maturity benefit. A death benefit is the amount paid to the nominee/beneficiary on the demise of the policyholder during the policy term.
10. Rider – An individual can choose to increase the protection provided by a base plan. This can be done by purchasing a rider, which is nothing but an add-on provided by the insurer.
In addition to the terms mentioned above, it is important for us to know the type of policy which we have purchased. While a participating policy partakes in the profits of the insurer, a non-participating policy will not earn any bonus from the profits of the company. Other common options when it comes to different types of policies are Unit-linked insurance plans, annuity plans, term plans, whole-life plans, etc.
Understanding these terms can help us make informed decisions, for a good life insurance policy is not a luxury, but a necessity in today’s times.
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