Essential Life Insurance Terms You Need to Know

14-June-2021 |

One of the smartest ways to secure your family’s financial future is investing in a life insurance policy. Of course, there is no way through which you can realistically estimate the monetary value of your life or that of a loved one. But you can surely prepare and shape your finances to take care of any long-term financial responsibilities or liabilities you have.

So, if you have finally decided to buy term insurance or a term policy to get some financial coverage, here are some key terms you need to know before finding the right plan for you.

 

Essential Life Insurance Terms

 

  1. Insurance: Insurance is a contract between an individual or entity and an insurance company through which they receive financial protection or reimbursement in the event of predefined losses.

  2. Insured: The person or entity covered by an insurance policy is called an insured.

  3. Insurer: The insurance company liable to provide financial protection or monetary reimbursement to the insured in the event of losses is called an insurer.

  4. Policyholder: The person who purchases an insurance policy and pays the premium is called the policyholder. A policyholder may or may not have bought the policy for himself/herself. If the insurance coverage is applicable to the policyholder, he/she is considered as the insured as well.

  5. Coverage: Insurance coverage is the amount payable by the insurance company to the insured in the event of a predetermined loss to self or property. To avail of a certain amount of financial coverage, the insured or the policyholder has to pay the established amount in premium(s) to the insurer.

  6. Life Insurance: Life insurance is a type of insurance wherein the insurer is legally bound to pay a defined sum of money to the insured on completing a predefined period or to the insured person’s nominee in the event of his/her death.

  7. Life Assured: An insured person for whom the life insurance offers financial coverage is called life assured.

  8. Term Insurance: Term insurance or term policy is a type of life insurance that provides life coverage for a limited period or a predefined ‘term’ in years. If the insured person dies while the term insurance coverage is active, a death benefit is paid by the insurer.

  9. Nominee or Beneficiary: A nominee or beneficiary is the person specified in the life insurance policy to receive the death benefit if the insured person expires during the active policy term. A beneficiary may be a relative, dependent, or any person or entity specified by the policyholder.

  10. Free Look Period: Free look period is the time frame during which the policyholder can review the policy document. If the policyholder has objections to the terms and conditions of the policy, he/she can return the issued policy to the insurer. The insurer, in turn, has to refund the premium paid by the policyholder after deducting operational expenses.

  11. Age Limit: This is the upper and lower limit of age within which a policyholder can purchase life insurance. An insurance company can deny the sale of an insurance policy if the policyholder is above or below the specified age limit. For term insurance coverage, the standard age limit is between 18 and 65 years.

  12. Sum Assured: This is the total amount that the beneficiary of life insurance can claim and receive in the event of the death of the insured person while the policy is active.

  13. Premium: Premium is the amount paid by the policyholder to the insurer to transfer risk and buy coverage. Insurance premiums can be paid one time in a lump sum or through regularized payments on a monthly, quarterly, or annual basis. The premium amount is dependent on the sum assured and insurance benefits availed of by the insured.

  14. Grace Period: If the policyholder is unable to pay the insurance premium on time due to any reason, the insurer offers a grace period of 15-30 days for payment while keeping the policy active. If the premium is still not paid after the grace period, the policy is considered lapsed and does not offer life coverage.

  15. Maturity Date: This is the date on which the policy completes its term and is terminated. Life coverage is not provided by the insurer beyond this date.

  16. Maturity Claim/Survival Benefit: For certain life insurance policies, the insurance company can offer a maturity claim or survival benefit to a policyholder. This is the amount that the insured will receive in the event of surviving the policy term. Although this amount is usually equal to the premium invested, it can also include certain bonuses2 or perks.

     

  17. Rider: A term insurance rider1 is an additional paid feature that increases the scope of a standard term policy. Different types of riders1 can be bought by the policyholder, either when buying the policy or later during the term. Riders1 can cover accidental death, critical illnesses, total and permanent disability, income loss, or life cover of a dependent.

     

  18. Surrender Value: If the policyholder discontinues the policy mid-term, he/she may receive an amount from the insurer called the surrender value. However, it depends on the terms and conditions defined when buying the policy, whether the policyholder is eligible for receiving the surrender value.

  19. CO Life Insurance: When a life insurance policy is bought by a company for its employees, it is called Company Owned Life Insurance or COLI. For a COLI, the policyholder is the company, while the insured is the employee. The death benefit for a COLI can be payable to the company or the nominees defined by the insured employee.

  20. Exclusions: Any event or type of loss not covered under a life insurance policy is called an exclusion. It may include death by suicide or death early in the term.

     

 

Tata AIA Life Insurance’s term insurance policies offer a comprehensive life cover to the insured, along with tax* benefits. The term insurance coverage can be enhanced by various term insurance riders1 offered by Tata AIA, allowing you to cover as much financial risk as possible. Use these life insurance terminologies to make an informed decision and choose the most appropriate policy as life cover.

 
 
L&C/Advt/2021/Jun/0878
 
 

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Disclaimer
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you
  • 1Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch

  • 2These bonuses are not guaranteed in nature. The Company may declare Cash Bonus rate annually in advance. The Cash Bonuses if declared, will be applicable provided all due premiums have been paid.

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This document is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. This document is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this document is accurate at the date of publication, however, the Tata AIA Life Insurance shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.