Life insurance is one of the most essential financial tools for a modern Indian family. It protects a person’s family financially if the insured person passes away unexpectedly. However, recent reports say that 75% of the Indian population does not have a life insurance plan. A major reason for this dismal statistic is that most people don’t have much knowledge about life insurance, its benefits, and its nuances.
There are a lot of technical terms and insurance-speak that could make it hard for first-time buyers to choose the right life insurance plan for themselves. To help you out, we list down some of the most important terminologies you need to know to start with life insurance:
- Life Insurance: Life Insurance protects the future of your loved ones by paying an amount of money referred to as a ‘death benefit’ if an unfortunate event occurs with the life insured. In a life insurance plan, you have to pay premiums for a specific policy term, and the life insurance company provides you with a life cover in return.
- Sum assured: A life insurance policy is built around the sum assured, which is also called the life cover. According to the terms of the policy, the sum assured is the amount of money that will be given to the policyholder’s nominee when the policyholder expires. As a general rule, you should choose a sum assured that is between 10 to 15 times your current annual income.
- Premium: The premium is the amount of money you pay to keep your policy in effect. You can choose how often you pay your premiums based on your budget. Most of the time, it can be paid monthly, annually, or twice a year. If you don’t pay your premium when the policy says you have to, your policy might expire after the grace period.
- Maturity: ‘Once your policy reaches maturity’ is a phrase you may have heard. This just means that your policy’s tenure is about to end. If you live longer than the term of your policy, you might get a lump sum when the policy end, depending on whether the policy provides such a feature. The payout you receive in such a situation is called the maturity benefit.
- Death benefit: If the policyholder passes away during the policy term, the person they had chosen when they bought the policy can receive the life cover to deal with the financial repercussions of the demise. This could be the sum assured, bonuses accrued, premiums paid, or some other amount, depending on the policy terms. This amount is referred to as the death benefit.
- Nominee: The nominee is the person the policyholder chooses to receive the death benefit in the event of their demise. The nominee could be your spouse, your child, your parents, etc.
- Riders: Riders are extra benefits that you can add to your policy to enhance your coverage. They can be bought at the same time as the policy or after. You do not have to go through the trouble of choosing another policy. Some of the most common life insurance benefits available as add-ons are:
- Accidental death rider
- Total and permanent accidental disability benefit
- Critical illness rider
- Waiver of premium rider
- Grace period: If you don’t pay your premium on time, the insurance company will give you a grace period. If the payment is not made even during the grace period, your policy might be cancelled. To keep your policy from lapsing, it is best to choose a premium amount and payment method that fits well into your budget and pay the premium on time.
- Surrender value: If your policy’s term hasn’t ended yet, but you still want to let go of it, you can choose to surrender the policy. Depending on the terms of your policy, your life insurance company might give you money. It is ideal to check this when you buy the policy.
- Claim: If someone passes away during the policy period, their nominee would have to file a claim with the insurance company. The nominee also needs to know the process to claim life insurance for the process to go smoothly and for your family to get the right amount to help them.
Unit Linked Insurance Plans (ULIPs) are one of India’s more popular insurance plans due to the various life insurance benefits. If you plan on getting yourself a life insurance policy, then opt to use the life insurance calculator. A life insurance premium calculator is a holistic planner that suggests the ideal amount of insurance and plans based on your unique needs.
