Insurance protects us from uncertain events of life. It is a safety net that helps our dear ones in case of our untimely demise. Insurance needs vary for each individual and it is should be bought only after a proper research and understanding of one’s requirements. Before you go for any insurance policy, it is important to understand the jargons and terminologies used by brokers and agents. This will help you understand the product offerings better without following a broker’s recommendations blindly. Before you go for an insurance policy, it is important to understand the jargons and terminologies used by brokers and agents. This will help you understand the product better and you wouldn't have to rely only on your broker’s recommendations. Let us take a look at some commonly and frequently used terms.
This is the amount one pays to the insurance company to avail a policy. In an insurance contract, the risk is transferred from the insured to the insurer for which the latter charges an amount called premium. This payment can be made in a lump sum or periodically at regular intervals, depending on the scheme. Premium amount depends on some variables like age, employment types, medical condition etc.
Insurer And Insured
An insurer is those insurance companies which provide you policies. There are a couple of state owned companies, whereas most are privately owned. The individual in whose name the insurance policy is made is called the policyholder or the insured. So, if you have bought a policy, you are the policy holder, the one who is insured. The person whom you name as the nominee is the one who will get the benefit on your demise. The nominee is also referred to as the beneficiary.
Sum Assured And Maturity Value
It is the amount of money the insurer guarantees to pay before any bonuses are added. Sum assured is the guaranteed amount the policyholder or the nominee will receive. Often this is also called the cover or the coverage and is the total amount a policyholder is insured for. Maturity value is the amount the insurance company has to pay on the maturity of the policy. This includes the sum assured along with the bonuses.
The bonus is the extra sum, which is accumulated to any insurance policy on a yearly basis. It will be paid to the policyholder on the maturity of the plan or in the case of his death. This gets paid on successful completion of all the premiums due for a particular number of years. Bonuses can either be with a profit bonus or a guaranteed bonus.
Term and Term Plan
The term is the total tenure of the policy. So, if the policy is bought for a period of 15 years, then it is referred as a 15-year-term. Whereas Term Plan is a type of insurance policy, in which insurer provides the policyholder with protection only. If the policyholder dies within the policy term, his nominee gets the sum insured. If he lives beyond the specified period, the policyholder gets nothing at the end of the term. This is the cheapest and most basic type of life insurance available.
There are life insurance policies that not only cover the individual’s life in case of an unfortunate event but also offer maturity benefits at the end of the term. After maturity, they are designed to pay a lump sum amount. The insurer pays the assured sum to the endowment policyholder’s nominees in case of policyholder’s death or to himself on a fixed date in the future. An endowment policy is a combination of insurance and investment, where the life of the policyholder is insured for a certain amount.
Rider or Add-ons
It is an optional feature that can be added to a policy for enhanced cover. This comes with an additional cost for the benefits availed.
An annuity is an insurance product that is designed to accept and grow funds from an individual and then pay out a stream of payments upon annuitisation. The time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments start, it is said to be in the annuitisation phase. The main aim of annuities is to provide a steady stream of income during retirement.
In case you decide to discontinue the policy and take away whatever money is due to you – the amount paid to you by the insurance company then is known as surrender value. A policy ceases to exist after this payment is done by the insurer. One misses returns if withdrawn before policy term.
This is the amount received at the end of your policy tenure. These are generally fixed and pre-determined amounts. This applies only in the case the insured is alive. BankBazaarInsurance.com, India’s premier online marketplace to compare and apply for the best personal finance products including Health Insurance, Car Insurance, Life Insurance and Two-Wheeler Insurance.
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