Basic Life Insurance Terms Everyone Must Know-Insured,Nominee,Insurer,Policy Holder,Sum Assured,Premium,Maturity,Lapse,Free look period
- What Is Life Insurance?
Life insurance offers a way to replace the loss of income that occurs when someone dies (usually the person who produces the majority of income in a family situation). It is a contract between you as the insured person and the company or "carrier" that is providing the insurance. If you die while the contract is in force, the insurance company pays a specified sum of money free of income tax — "cash benefits" — to the person or persons you name as beneficiaries
When you go shopping, would you rather be knowledgeable or ignorant about some basic things that can help you make a smarter decision about buying the product? The answer is obvious. The same discipline and shopping habits should also be used when buying financial products such as Life Insurance. Here we share with you basic terms that everyone must be knowledgeable about, followed by an example to help you relate to these terms.
- Insured: The insured is the person who life is being insured.
- Nominee / Beneficiary: This is the person who will receive the policy proceeds in case of death of the insured. The owner of the policy designates the nominee but the nominee is not a part of the insurance contract. The nominee is not required to pay any premium. The name of the nominee can be changed, unless the policy says otherwise.
- Insurer: The insurer is the Life Insurance Company that undertakes the responsibility to pay the policy amount to the nominee on the occurrence of the insured event. For example, LIC, Birla Sunlife, ICICI Prudential, HDFC Standard Life, SBI Life are all insurers.
- Policy holder: This is the person who buys the policy or the one who owns the policy. The insured and the policy holder can be one and the same person, or they can be two different people.
For example, if Rahul buys a policy on his own life, he is both the policy holder and the insured. But if Asha, his wife, buys a policy on Rahul's life, she is the owner and he is the insured. The policy owner is the person who undertakes the guarantee to pay the premiums. The insured is a part in the contract, but not legally bound to it to follow its terms.
- Sum assured: This is the minimum amount of money that the policy will pay out to the nominee in case of the insured's death or the occurrence of the insured event.
- Premium: A periodic or a single payment payment that a policy holder makes to the insurance company in exchange for the insurance company's obligation to pay out the sum assured.
- Maturity: Some insurance policies are valid up to a certain period of time only. When this period expires, the policy is said to have reached maturity. At this date the policy holder receives a sum of money from the insurance company.
- Lapse: When the policy holder is unable to or does not pay the premium any more, within the specified grace period, the policy is said to have lapsed. If certain conditions are met, a revival of a lapsed policy might be possible.
- Free look period: Once you get an insurance policy, the rules offer you 15 days within which you can revisit your purchase decision. This gives you the time to go through the policy's fine print, understand how the policy is going to work and be convinced that you need such a policy before deciding to commit funds every year over the insurance plan's tenure.