Switch to the Simpler Insurance

What are you looking for?

Term Life Calculator

Group Term Plan

Become Life POSP

Basic Terminologies to Know in Term Insurance

Buying life insurance is an ideal choice if your family and loved ones are dependent on your earnings. With this, you can stay at peace, since it ensures financial protection of your loved ones in case of your unforeseen demise. Among different types of insurance plans, term insurance has been popular because it offers a considerable sum as life cover.

However, while buying it, certain technical terms in a policy may seem confusing. Keep reading this article to know the terms used in insurance and what they mean.

List of Important Terms in a Term Insurance

The following are the terms used in term insurance and their meaning:

1. Policyholder

Policyholder is an individual who buys a life insurance policy and pays its premium. It is not necessary that the policyholder will be the one being insured. If you buy the insurance for someone else, you will be the policyholder for the other person being insured.

2. Life Assured

Life assured refers to an insured person or for whom a term insurance plan is bought. Usually, the earning member of any family is life assured. This way, on their unforeseen demise, the other members are not financially strained by the sudden loss of income.

3. Nominee

A nominee is a beneficiary or an individual who receives the sum assured in the event of the insured person’s demise within the ‘term’ of policy. Typically, the policyholder chooses their nominee, and a family member or close relative is a common choice.

4. Sum Assured

Sum assured is a basic terminology of insurance, which refers to an amount that the insurance company agrees to pay the nominee on the demise of the insured person. For instance, you have bought a term life insurance for yourself while nominating your spouse as its beneficiary. In this case, your wife will receive the sum assured in the unfortunate event of your untimely demise.

While buying a policy, a policyholder has to decide the sum assured. Let us assume this amount is ₹2 crore. Now, in case of the policyholder’s death, before the term is over, your beneficiary will get ₹2 crores from the insurer. This sum is also referred to as the cover.

5. Policy Term

Also known as policy duration or policy tenure, policy term refers to the time span for which this plan remains valid. However, this period varies from one policy to another. For instance, the policy term of your insurance plan can be 50 years. This means that in case of the life-assured person’s demise within this period, the insurance company will compensate the entire sum assured amount to the nominee mentioned in this policy.

6. Premium

The premium amount refers to the fixed sum a policyholder must pay to their insurance company at regular intervals to continue the policy. Since plenty of insurance plans are available, you have the complete freedom to pick payment intervals like monthly, quarterly, yearly, etc.

7. Payment Mode/Term

Payment mode or term refers to methods by which policyholders pay the premium to their insurance company. In general, payment modes are classified into three categories. They are:

Regular Pay: In the method of regular pay, the policyholder has to pay premiums all the way through the policy term.
Limited Pay: In this method, a policyholder can select a period in which they will pay the premium to the insurance company. For instance, if you select a period of 6 years, you have to pay premiums for only that much period while the insurance plan will remain active for the whole term you choose.
Single Pay: In the single pay method, a policyholder will clear the premium payment in one go. Usually, this payment is made during the purchase of an insurance policy.

8. Death Benefits

Death benefit refers to the total amount which the nominee gets from an insurance company in case of the insured person’s death within the policy term. This amount is normally equal to the sum assured. However, if there are riders in an insurance policy, the death benefit amount may be higher than the sum assured amount.

9. Riders

Riders refer to the add-ons to your prevailing term life insurance plan. In other words, they provide additional coverage against risks. These add-ons may be accidental death benefits, critical illness, etc. The policyholder has to pay more for riders while purchasing the insurance policy.

10. Claim

An insurance claim refers to an official request made to an insurer in order to reimburse against losses covered under an insurance policy. When a policyholder dies within the policy term, their nominee will not get the sum assured instantly. They will have to file this claim with the insurance company in order to get the amount.

11. Free Look Period

Generally, every insurance policy has a free look period that refers to the duration within which you can dismiss the insurance plan without paying penalties. However, this time span may vary from one policy to another.

12. Grace Period

The grace period refers to the time extension that an insurance company provides if you are unable to pay the premium for the renewal of your insurance plan on the due date. This ‘Grace Period’ is usually 15 days if it is a monthly premium payment mode. Additionally, when it comes to the annual premium payment mode, 30 days grace period is given. Even after the grace period, if you fail to clear the premiums, your policy will lapse.

13. Surrender Value

If a policyholder plans to withdraw the insurance policy before the maturity period, the insurance provider pays a specific amount to them, known as the Surrender Value. Hence, before availing an insurance policy, you should check in their terms and conditions whether it provides a surrender value as every insurance company does not give this facility. If they offer a surrender value, check how much its amount will be.

14. Paid-up Value

If you stop paying the premiums subsequent to a particular period of time, the insurer will give you the option to convert your insurance plan into a reduced paid-up plan. In this option, the amount of sum assured is reduced according to the number of paid-up premiums. If a policyholder stops paying premiums after 3 years, they may get this opportunity as long as the policy has collected substantial policy value.

Knowing the terms used in insurance will help you to make a well-informed decision while buying a term life insurance. If there is any confusion, you should talk to an insurance agent or consultant without fail.

FAQs About Terms to Know in Term Insurance

Can two term insurance policies be purchased together?

Yes, you can purchase multiple term insurance policies from the same or various insurance companies simultaneously. This way, you can cover your payments during different phases of your life without hassle. Also, when it comes to multiple insurance policies, there has been a specified upper limit. Thus, qualified individuals are eligible to buy insurance benefits upto 25 times their annual salary.

Does the insurance premium change after a specified time period?

Insurance premiums can escalate just after the end of a policy period. The insurance company can increase the claim premiums made during the earlier period if the risk involved in a specific type of insurance increases, or the cost of coverage rises.

What are the five forms of term insurance?

Mentioned below are five noteworthy forms of term insurance:

Level Term Insurance
Increasing Term Insurance
Decreasing Term Insurance
Return of Premiums Plans
Convertible Term Plan

What is the difference between life insurance and term insurance policy?

Typically, a term insurance policy only offers a death benefit in the event of the insured person’s death within the policy term. On the other hand, a life insurance policy provides both maturity benefits and death benefits to the insured individual.