Important Term Insurance Terminologies Explained

What is Term Insurance?

Term insurance is a kind of life insurance that provides financial protection to your family for a specified period or term. Hence the name ‘term insurance.’ A term insurance plan is a pure life cover, meaning that it offers only death benefits. These benefits are paid out to the nominee if the insured person passes away during the policy term. In return for this coverage, the insurance provider charges a premium.

A term insurance plan is also one of the most affordable kind of life insurance, because it offers only death benefits. This allows you to get a high life cover at nominal rates of premium. If you are planning to purchase a term insurance policy, you can make use of a term insurance calculator to check the suitable amount of coverage for your needs.

That said, it is also important to understand the various terminologies that pertain to this kind of insurance. So, take a look at the important words and phrases that you should know before you buy a term plan.

Important Terminologies Used in Term Insurance

Here is a closer look at the essential term insurance terminologies that you need to be aware of. Let’s get started.

1.Nominee

This is the person to whom the death benefits guaranteed under the term insurance plan will be paid out to, in case the insured person passes away during the policy term. The nominee is the person entitled to receive the proceeds under the term insurance plan.

2.Claim

A claim is a formal request that is made to the insurance provider for the payment of the benefits or dues as per the terms and conditions of the policy. A claim is generally raised once the insured incident has occurred. In the case of a term insurance plan, a claim is raised upon the demise of the insured person during the policy term.

3.Date of commencement

This is the date on which the term insurance plan becomes active. It is the date from which the life cover is available to the Life assured.

4.Free look period

This is a specific period of 30 days beginning from the date of receipt of the Policy Document, whether received electronically or otherwise, to review the terms and conditions of the policy. During this period, you have the right to return the policy to the insurer if you are not satisfied with the terms and conditions of the policy. The insurer will then cancel your policy and return the premium to you, excluding applicable taxes paid, less the proportionate amount of risk premium (for the period the Life Assured was on cover) and the expenses incurred by the Company on medical examination and stamp duty charges.

5.Grace period

Grace period refers to the window of time during which you have an opportunity to pay any premium that has been delayed.

Typically, this grace period is around 15 days for monthly premium plans and 30 days for other plans, during which the Policy is considered to be in force with the risk cover. If you do not pay the premium due even within the grace period, your term insurance policy will lapse, and you will lose the benefits associated with your policy.

6.Insured

The insured person is the one whose life is covered by the term insurance policy.

7.Term insurance premium

The term insurance premium is a sum of money that is charged by the insurance provider in return for the coverage offered. Term insurance premiums are due on a periodic basis (either monthly, quarterly, semi-annually or annually) based on the terms and conditions of the plan. Paying these on time keeps the life cover active.

8.Policy term

The policy term refers to the period over which the life cover is active. It is the duration in years, as chosen by the policyholder, from the date of commencement till the expiry of the term insurance plan.

9.Term insurance riders

Term insurance riders are add ons  that you can purchase separately, over and above the base  policy. Each rider attracts an additional nominal rider premium. There are different types of riders available with term plans. Some of the common ones are as follows -

Critical Illness Benefit Rider

This rider covers the listed critical illnesses If the life assured  is diagnosed with any covered illness, the rider sum assured is paid in a lump sum.

Accidental Death Benefit Rider

This rider covers accidental deaths occurring during the policy tenure. In the case of an accidental death, the rider sum assured is paid in addition to the sum assured payable by the base term plan.

Disability Benefit Rider

This rider covers accidental disabilities. If the life insured suffers a permanent, total or partial disability due to an accident, the rider benefit is paid. 

Waiver of Premium Rider

This rider waives future premiums if the life assured  passes away, suffers a critical illness or suffers permanent disability during the policy tenure.

Income Benefit Rider

Under this rider, a regular income is paid [8] [9] to the family for a specified duration if the life insured passes away during the policy term.

Terminal Illness Rider 

This rider covers terminal illnesses. If the life insured is diagnosed with a terminal illness, a part of the sum assured is usually paid in advanced to provide financial assistance. In some cases the entire sum assured can be accelerated and the policy terminates once the full sum assured is paid.

10.  Premium paying term

Premium paying term is the duration over which the premiums are due under the term insurance plan. Term plans can offer three types of premium paying terms -

1. Regular premium payment - Under this mode, you have to pay premiums throughout the policy term
2. Limited premium payment - Under this mode, you pay premiums for a limited tenure, which is lesser  than the overall policy tenure.
3. Single premium payment - Under this mode, you pay the premium in one lump sum at the time of buying the policy.
   
   

11.  Sum assured

The sum assured under the term insurance plan is the amount of money that is guaranteed to be paid to the nominee in case of the demise of the insured person during the policy term. In other words, this sum is assured under the plan, and it is the life cover amount that you purchase when you buy a term insurance plan.

Check out this video to know the benefits of pre-approved sum assured