Top 10 Life Insurance Terminologies a Policyholder Should Know
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Having a health or life insurance policy is mandatory these days. But the long list of terminologies are crucial for understanding the policy before you start investing. Unless a policyholder understands what the different terms mean, they would not be able to use the benefits of the policy.
To help you in making the right choice for a particular life insurance, let us look at some of the key insurance terms that are indispensable for understanding this financial product. The following are a list of top 10 terms in life insurance -
Top 10 Life Insurance Terminologies -
1. Premium
A top of the list word, it is most important to understand what a premium means before you invest in a life insurance. All health and life insurances provide an insurance cover subject to the payment of a monthly amount that you or your employer will have to pay in exchange for the cover.
This amount is known as a premium and different health insurance companies have different rates and modes of premium payment, either payable in a single lump sum amount or in monthly, quarterly, half yearly and annual installments.
2. Sum Insured
The primary objective of getting life insurance is to ensure a financially stable future for yourself and your family members in the face of a medical emergency or any unforeseen situation. A sum insured is the amount that is promised to you by the insurance company in case of death or a medical emergency.
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For example, if your life insurance company offers a sum insured on INR 5 Lakh and the life assured suffers an untimely demise, the company will pay the nominee a sum of INR 5 Lakh. Similarly, if you incur medical treatment and hospitalization costs of INR 2 Lakh, the company is liable to pay the sum of INR 2 Lakh. Different insurance companies have different options for receiving the sum insured amount.
3. Claim
All life insurance companies have a process by which the nominee or the policyholder can receive their sum insured or other expenses as and when incurred by them. This process is initiated by making a claim or submitting a request to the insurance company to obtain the payment and services of the insurance company.
4. Co Payment
Contrary to popular notion, not all expenses would be borne by the insurance company. While filing a claim, a fraction of the payment has to be paid by you. This is known as co-payment where a certain percentage of the claim made towards the life insurance company is borne by the policyholder themselves.
5. Deductibles
A deductible refers to the amount of money that you have to pay for services before your policy is active. For example, if your life insurance policy has a deductible amount of INR 10,000 and you file a claim of INR 35,000 then you would have to pay the deductible amount of INR 10,000. A company will only pay when the claim amount is over the deductible limit.
6. Waiting Period
This term refers to the period of time when your policy is still not in force and you cannot make any health or critical illness claims towards the same. Life insurance policies come with a waiting period and its duration varies from company to company. During this time, your insurance company is not bound to make any payments to you. The general waiting period for most companies is 30 days but it can also be from a few months to almost 2 years.
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7. Free Look Period
All life insurances come with a free-look period that can be understood as a trial period for any particular policy that an individual might buy. During this period, the policyholder has the option of reviewing the terms and conditions of the policy and can also return the policy in case they are dissatisfied by it. It usually ranges from a period of 15 to 20 days, depending upon the online or offline mode of the policy. All premiums paid by you during this period are refunded by the insurance company, after deducting applicable charges and any medical costs incurred by you.
8. Exclusions
Life insurances come with clauses where the company is not bound to extend its benefits to the life assured under certain circumstances. These are known as exclusions where sudden demise caused by self-harm or abuse of alcohol and psychotropic substances, accident, homicide or a congenital disease will not be covered by the insurance company and the sum insured will not be payable to the nominee.
9. Dependants
It is known that insurances can be bought either for one individual or the policyholder can include their family members. This term refers to people such as the policyholder’s spouses, children and parents who can be included as a nominee under their insurance policy.
10. Certificate of Insurance
This term refers to a very important document that all policyholders receive upon buying a life insurance policy. A certificate of insurance consists of a descriptive account of benefits and coverage options of the life insured and discloses other crucial information such as exclusions and cash withdrawal limits.
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Insurances are tricky and understanding the terms and other conditions is essential for a better comprehension of different plans. These terms are most commonly and abundantly used in insurance policies and hopefully it will help you to choose the best life insurance suited for you and your family.
