What is Common Terminologies Under Term Insurance?

What is Common Terminologies Under Term Insurance: Before deciding to buy a term insurance plan, it is important to understand what a term insurance policy is. There are certain terms and conditions associated with term insurance that can confuse investors. Here are some common terms related to term insurance plans that will help you make an informed decision.

 1. Policy Term

Every term insurance plan has a specific term known as the policy term i.e. the period for which your policy will remain active, provided you are paying your premiums on time.

 2. Premium Amount

The policyholder has to pay a certain amount to the insurer in lieu of the life cover provided under a term insurance plan. This amount is known as term insurance premium. If the policyholder fails to pay the term insurance premium within the due date, the insurance company provides a grace period. Failure to make payments even during the grace period terminates the policy.

 3.Premium Payment Term

Insurance companies offer ample flexibility in the frequency of premium payments. There are several premium payment options depending on the terms and conditions of the product, such as –

 Single Premium Payment: The entire premium for the policy can be paid in one go as a lump sum amount.

Regular Premium Payment: The term insurance premium paying term lasts for the entire policy term. Premiums have to be paid at regular intervals based on the terms and conditions of the product, i.e. monthly, quarterly, half-yearly or yearly.

Limited Premium Payment: Term insurance premiums have to be paid for a specific period whereas the coverage under the policy is for a longer period.

 4. Riders

Term insurance plans may offer a number of riders, which increase the coverage of the plan at no additional cost. Some common term insurance riders are:

  •  critical illness rider
  • accidental death benefit rider
  • waiver of premium
  • accidental total disability rider

5.Grace Period

If you fail to pay the premium on time, the insurer does not cancel the policy immediately. A grace period is provided to the policyholder for making the payment. Typically, a 15-day grace period is given for regular monthly premium payments, while policies with annual or other premium paying frequency have a 30-day grace period.

 6. Life Assured

The person covered under a term insurance plan is known as the life assured. The insurer pays the sum assured to the nominees on the death of the insured.

 7. Death Benefit

In the event of the death of the life assured, the amount paid to the beneficiaries of the term insurance policy is known as the death benefit. For example, if a term insurance policy has a cover of Rs 50 lakhs, then the amount paid as death benefit to the nominee of the policyholder is 50 lakhs i.e. the death benefit is 50 lakhs.

 8.Maturity Benefit

Term insurance does not provide any maturity benefit. The policyholder gets nothing if he survives beyond the policy term. However, term plans with return of premium benefit pay the total premium as maturity benefit at the end of the policy term.

Also read: What is Insurance and how many types are there?

9. Free Look Period

As a measure of transparency, insurance companies provide a free look period. During this period you can cancel the policy without any penalty. Free Look acts as a window of cancellation for the policyholder if he/she does not agree to the terms and conditions of the policy. The free look period for policies received through offline mode is 15 days while in case of remote marketing it is 30 days.

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