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 Term Insurance Terminologies that One Must Know
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 legally 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 (usually 15 days for regular policies and 30 days for distance marketing & electronic policies) during which 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. Premium paying term
Premium paying term is the duration over which the premiums are due under the term insurance plan. In most cases, the premiums are due throughout the policy term, making the premium paying term equal to the policy term. However, in the case of limited premium paying term plans, the premium paying term is shorter than the policy term. This means that you can pay your premium for a short period and enjoy coverage over a longer period.
10. Term insurance riders
Term insurance riders are additional benefits that you can purchase separately, over and above the basic policy. These riders offer different kinds of specific coverage such as cover for critical illness, cover for accidental death, or cover for total or partial permanent disability. You need to pay an additional nominal premium for these term insurance riders.
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.
12. Joint life term insurance
A joint life cover is a term insurance plan that offers coverage to two people. Typically, it may be beneficial for spouses who wish to simultaneously insure both of their lives under one policy.
Conclusion
This sums up the key terminologies related to term insurance plans. Knowing the meaning of these terms and phrases can help you understand the product better, so you can make an informed decision about whether or not a plan is the suitable life insurance product for your needs and your family’s requirements.
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