Term insurance is a form of life insurance that provides financial cover to the policyholder’s nominee/family, in case of the untimely death of the life assured. Term insurance is one of the simplest forms of life insurance, but people looking to buy Term Insurance may get confused with all the technical terminologies used by insurance companies. We have compiled a set of important term insurance terminologies and their meaning to help readers become more familiar with the topic.
What is Term Insurance?
Before understanding the term insurance terminology, it is important to understand what term insurance is. Term Insurance is a form of life insurance that provides financial coverage to the nominee/family of the policyholder. If the policyholder/life assured dies, while the Term Policy is still active, the nominee/family receives a pre-decided lump sum amount of money, as part of the term policy. The policyholder has to pay premiums to keep the term insurance policy active.
Term Insurance Terminologies
Policyholder – The policyholder is the person who buys the policy from insurance companies, also known as the policy owner. The policyholder is responsible for making premium payments.
Life Assured – Life assured refers to the individual for whom the policy has been purchased. The policyholder can also be the life assured, or he/she can buy the policy for one of the family members. For e.g. A husband can buy a life insurance policy for his wife, so he will be the policyholder, while the wife is the life insured.
Nominee – Nominee refers to the person/people, who would receive the death benefit/sum assured amount, in case of death of the life assured while the term insurance policy is active.
Sum Assured/Death Benefit – Sum assured refers to the coverage amount that the nominee is eligible to receive in case of the death of the life assured. The death benefit is the same as the sum assured unless there are other riders applicable. In case of the riders applicable, the death benefit amount can go higher than the sum assured.
Policy Term – This refers to the period of time when the term policy is active and valid. The policy term period can differ for each policy and the policyholder has the choice to select the time period of the policy. If the life assured passes away during this period, the term insurance death benefit is given to the nominee.
Premium – Term insurance premium refers to the fixed amount that the policyholder has to pay to the insurance company, to keep the term insurance plan active. Term insurance premium payments can be made monthly, quarterly, semi-annually or annually. This premium can be calculated with the help of a term insurance plan calculator.
Payment Term – Payment term refers to the type of payment mode the policyholder chooses for the insurance plan. There are three types of payment modes – Limited Pay insurance, Regular Pay insurance, and Single Pay insurance.
Riders – Riders are additional options that the policyholder can include under their term plan. These riders are not part of the base term insurance and have to be added to the plan for an additional cost. Riders provide additional benefits like the critical illness cover, accidental death benefit etc.
Claims – If the life assured dies during the active policy term, their nominees are eligible for making a claim to the insurance company for the sum assured. Once the insurance claim has been approved by the company, the sum assured is provided to the nominees.
Free Look Period – Free look period refers to a set duration of time after buying the policy when the policyholder can cancel the term insurance without any penalties or extra cost. Different companies have different free look periods for their policies.
Maturity Benefit – Maturity benefit refers to the amount the policyholder receives in case they survive the duration of the policy term. Maturity benefit is only provided to those policyholders who opt for a term plan with the return of premium rider.
Term Insurance Plan Calculator – A term insurance plan calculator is an online calculator used by insurance companies on their websites. Prospective customers can use the calculator available on insurance companies’ websites to determine the premium payments, coverage, and policy terms of different plans.