You Should Be Aware Of These Life Insurance Terminologies
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Understanding the basic life insurance terminology helps us to understand the various benefits and features of a policy. You might wonder what various insurance terms like “Maturity Benefit” or “Grace Period” means. Often, such confusing terminologies prevent individuals from buying life insurance and even if they do, they don’t necessarily understand the meaning of various terminologies used.
Finding a suitable insurance policy for yourself would seem like a very easy task, but it can also turn into the most dreadful and tedious journey if you do not know the correct terminologies to understand what it means. Don’t let the heavy and complicated terminology bog you down, here is a comprehensive list of some terminologies that will help you master the art of understanding the policy.
Common Terminologies Of A Life Insurance Policy
Therefore, to help you understand these terms, given below is the list of some important life insurance terms and their explanations.
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Policyholder
An individual who buys the life insurance policy as well as pays its premium is known as the policyholder. He/she may own the policy, but may or may not be assured of life.
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Life Assured
The insured or protected individual is known as the life assured. In case of any unfortunate event such as the death of the Life Assured, the nominee will receive the insurance amount. It’s vital to understand the difference between a policyholder and life assured. For instance, when a husband buys an insurance policy for his wife, the husband is the policyholder whereas his wife is the life assured.
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Premium
It is the sum you pay to keep your life insurance policy active. In case if you are unable to pay the premium amount either before its due date or within the grace period, your policy may lapse. Premium is the total or the final amount paid on the Sum Insured.
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Sum Assured
Sum Assured is the guaranteed amount the nominee will receive in case of unfortunate death of the life assured. In most cases, the decision to arrive at the sum assured is based on the financial loss that may emerge because of the demise of the life assured. The policyholder chooses this amount at the time of purchasing the policy. It is paid to the nominee in case of a Life insured individual’s demise during the policy tenure.
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Policy Tenure
It is the duration for which the life insurance policy provides coverage. Depending on the type of policy, its terms and conditions of the insurance company, the policy tenure of life insurance policies vary.
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Nominee
The Nominee is a person nominated by the policyholder, who receives the life insurance pay-outs and other benefits in case of an unfortunate eventuality. (Also known as the beneficiary). The nominee must be declared at the time of purchasing the policy. Policyholder’s spouses, children, parents can be declared as nominees who may have immediate financial dependence on you.
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Beneficiary
Beneficiary is essentially the individual who would get the benefits from the insurance in case of the death of the original policy holder. For example, if someone buys a fully covered Motor Insurance, and unfortunately meets with an accident, the sum insured would go to the beneficiary. No Claim Bonus or NCB is the term that is used to explain the amount of money that is given as a bonus or reward to the policy holder if he/she does not claim the insurance in the preceding year. The amount of discount would usually range from anything between 20-50% of the premium.
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Zero Depreciation Cover
As the name suggests, this is the kind of Car Insurance or Two-Wheeler Insurance that has Zero Depreciation Policy. By adding this cover to your policy, you can get the full value on all the parts and the vehicle in case of accidents or mishaps. In all the other types of policies, the value of the vehicle and the parts keeps reducing as they age.
Conclusion
The basic principle of insurance is that an entity will choose to spend small periodic amounts of money against a possibility of a huge unexpected loss. Basically, all the policyholders pool their risks together. Any loss that they suffer will be paid out of their premiums which they pay.
Also read- What Makes Term Insurance A Good Investment?
