Ch. 14: Commonly Used Jargons in Life Insurance

If shopping for life insurance or speaking with your insurance company has you in a state of confusion, you are not alone. Insurance jargons can seem like a whole different language. And not understanding them thoroughly can prevent you from making a well-informed decision. But don’t worry! We are here with an explanation of tricky terms you might come across in the upcoming modules, and even during your insurance journey. This will help you deal with your policy in a much better and easier way.

Let’s begin!

Commonly Used Life Insurance Terms

Policyholder
A person who owns the policy or in whose name the policy is purchased. Only the policyholder can make changes to a life insurance contract. They are also responsible for paying the premiums (the price of the insurance) of the life insurance policy.

Life Assured

It is the person whose life is covered in the insurance contract. A person for whom the policy is purchased to cover their risk of untimely death.

Important: The life assured and the policyholder in a life insurance policy may or may not be the same person. If they are the same, the person whose life is covered will own the policy as well as pay the premiums. If they are not the same, the person whose life is covered will be different from the owner of the policy. For example, a husband can buy a life insurance policy for his wife who is a homemaker. Since the wife will not be able to pay her own premiums, in this case, the wife will be the life assured and the husband will be the policyholder.

Participating Life Insurance Policy

As the name suggests, this policy enables you, as the policyholder, to share the profits of the insurance company. These profits are shared in the form of bonuses or dividends. It is also known as a with-profit policy. However, the bonus that is paid out is not guaranteed. It is based on the performance of the insurance company.

Non-Participating Life Insurance Policy

Under this policy, you, as the policyholder, will not receive any bonuses or dividends declared by the insurer from time to time. Your returns are fixed.

Unit-Linked Life Insurance Policy

It is a type of life insurance plan that has two sides - Investment and Insurance. The plan is linked to the stock market, and the returns you get depend on the performance of the market. The risk involved in this policy is high, but it has the potential of offering high returns.

Non-Linked Life Insurance Policy

It is a traditional plan that offers financial protection (insurance) to your family. It may have a savings component that gives guaranteed returns when the policy ends. A non-linked plan is not linked to the stock market, and hence, if the policy offers any returns, they will be fixed. It provides low-risk returns and guaranteed maturity amount and bonuses. For example, a Money-Back Policy or an Endowment Policy can be classified as non-linked insurance policies.

Please note, there are non-linked plans that may not provide any returns at all. A term insurance plan, for instance, is a non-linked plan which does not give you any returns.

Cash Value

This is the money that gets accumulated in your life insurance policy, and earns interest over time while the policy is active. This is the money you can borrow, withdraw, or use to pay your future premiums.

Please note: Not all life insurance policies offer this benefit. So, ensure you check with your financial advisor and go through the policy wordings and brochures to see if the policy you are planning to buy has this benefit.

Net Asset Value (NAV)

It is the market value of each unit of the fund you are investing in, on the date of investment. It is stock-market linked - hence, dynamic in nature. Its value changes every day.

Riders

It is an add-on benefit that can be added to your life insurance policy by paying an additional premium for a wider coverage. You can cover various risks - right from loss of income due to critical illness or permanent disability, among others.

For instance, If you need to get hospitalised to undergo any treatment or surgery, with a Hospital Care Rider in place, you will receive a daily Cash Benefit to take care of your expenses. Or in case you meet with an accident that leads to disability, an Accidental Disability Rider will provide an additional sum of money and help you cope with the situation.

Surrender Value

It is the amount the insurance company will pay you if you terminate your policy, i.e., stop paying the premiums - before the policy term ends. For the policy to acquire a surrender value, you must pay all the due premiums for at least 2 years.

Reduced Paid-Up

Once you stop paying the premiums and the policy has acquired a surrender value, you can either

• Take the surrender value and stop the policy, or
• Continue the policy on a reduced paid-up basis.

Once the policy converts into a reduced paid-up policy, the benefits (death benefit, maturity benefit, bonuses, etc.) will be reduced in proportion to the number of premiums you have paid to the total number of premiums payable. You will be able to enjoy reduced benefits of the plan, without paying any future premiums.

Annuity

An annuity is a fixed amount of money that you will get each year from your insurer, either immediately or in the future. The premiums you pay are converted into the periodic payments you receive on the basis of annuity rate which can vary across insurance companies. Annuities can last for life and help protect you from the risk of outliving your work income. They are generally seen as retirement income supplements.

Annuitant

It is the person who is entitled to receive the annuity. The annuitant may be the contract holder or another person, such as your spouse.

Policy Schedule

It is the cover page of the policy contract. It shows the details of the policyholder, life insured, and a brief description of the policy.

Benefit Illustration

It is an estimation of how the money you, the policyholder, have invested in life insurance will perform over a period of time. It consists of financial projections for every year throughout the policy term, until the policy matures.

Free-Look Period

If you decide to cancel/return your life insurance plan due to any reason, you are entitled to a refund of the premiums paid. A Free-Look Period is a 15-day window given to you (from the day your policy is issued) to apply for a cancellation. No penalties will be levied during this time frame.

Grace Period

It is an additional time period offered by insurers to pay the life insurance premiums. You may want to buy a policy, but may not always be in a situation to make payments on the exact date. That’s where Grace Period helps. You can pay your missed premium instalment, during the Grace Period, without losing your life cover.

If you fail to pay the premiums within this time frame, your policy will lapse and the benefits will be lost.

Revival Period

Every life insurance policy comes with an expiry date. Once a policy expires or gets discontinued, you cannot avail any of its benefits. Insurance companies offer you a time period to revive your policy - post the grace period. This time-frame is called the Revival Period. It is generally for 3 years, but may vary across policies. The 3 years are counted from the date of the first unpaid premium that was due.

Nominee

A nominee is a person who receives the benefits under your life insurance policy, if you pass away during the policy term. You can choose any financial dependent, like your spouse, children, or parents as your nominee.

Appointee

It is the person who is appointed by you and authorised to receive the benefits under the policy on behalf of your nominee - in case the nominee is below 18 years of age on the date of claim payment.

We know reading about life insurance isn’t exactly fun, but your future will thank you when you pick a plan that covers you and the people you care about. Our next modules will take you through the nuances of life insurance and its various products - in detail. Remember, confusion ends when a path to a new understanding begins.