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Tata Capital > Blog > Wealth Services > Key Insurance Terminologies Explained

Wealth Services

Key Insurance Terminologies Explained

Key Insurance Terminologies Explained

Availing of insurance can be a daunting task, especially so given the quantum of jargon that you will have to read through whilst signing up your contract. Here, we attempt to de-jargonise some of the keywords that you would come across to make your life easier.

1. Whole Life Policy

It is a traditional form of life insurance. It provides permanent death benefit coverage up to the age of 99 years.  Therefore, Whole life insurance is paid out to a beneficiary or beneficiaries upon the insured's death, and thus it’s a form of estate planning.

2. Endowment policy

It is a variant of life insurance policy wherein the policyholder pays a premium for the pre-determined period, and upon death or maturity of the policy term, whichever is earlier, a lumpsum amount is paid to the beneficiary (upon the death of the insured) or policyholder (upon maturity of the policy). Many of the life goals, such as children's higher education, marriage, purchase of a house etc., are planned using this type of policy.

3. Money back policy

Under this type of life insurance policy, the insured will get a certain percentage of the sum assured at regular intervals. This is a variant of the endowment policy. It adds an element of liquidity to the traditional endowment policy. Children's plans are designed in the money-back policy framework to help you manage their frequent milestones concerning education/marriage.

4. ULIPs

ULIPs are unit-linked insurance plans. They offer the dual benefit of planning for your long-term goals and protecting your family via life cover during the event of the unfortunate death of the insured. The premium paid in this case is divided into 2 parts, the first part caters to the life cover component (which is relatively small), and the other is contributed towards a fund of your choice (debt, equity, hybrid) which helps you to participate in the upside of the market.

5. Tax benefit

The insurance premiums qualify for the tax benefits, while the life insurance premium is covered under section 80C up to Rs. 1.5 lakh, the maturity amount is also exempt from taxes subject to Section 10 (10D) and for medical insurance premium paid is covered under section 80 D upto Rs. 1.0 lakh depending upon your parents and your age

6. Keyman Insurance

Keyman insurance is an insurance policy where the proposer of the policy and the premium payer of the policy is the employer, and the life that is insured is that of an employee who is valuable to the company. The benefits of the policy, in the event of a claim, will go to the employer in this case.

7. Occupational Hazard

It is the condition under which the type of occupation increases the probability of accident, sickness or death. This will result in the premiums of the policy being higher. It is mandatory, under the workmen's compensation insurance, to provide financial protection for employees who are injured during their regular work.

8. Annuity

It is fixed money that is paid to the policyholder over the rest of their life. An annuity is a contract between the policyholder and the insurance company where the insured pays premiums for a certain period (may also be for a single premium policy), and the insurer makes annual payments from the agreed timeline, typically for the rest of life. These plans work best for pension post-retirement.

9. Joint Life policy

Such policies provide coverage for two people, the premium is paid by the insurers (in this case, 2 people), and the payout is on a first-death basis. If one of the insured dies, the sum assured is paid to the other policyholder, if both die, the amount goes to the beneficiary.

10. Proposer / insured

The person who buys the policy is the proposer, the proposer can also be the life insured. However, he can also buy the policy for another individual with whom he has an insurable interest. For example, a husband buys a policy for his wife. In this case, the husband is the proposer, and the wife is the insured.

11. Premium

The money paid by the proposer/policyholder to the insurance company for availing of the insurance benefit/policy is called the premium. It is the price paid for the protection against the risk/hazard that the insurance company offers coverage.

12. Sum Assured v/s Sum Insured

Sum insured is the value applicable to non-life insurance, while sum assured is the value applicable to life insurance policies. It is based on the principle of indemnity, which provides compensation for loss based on the risk covered.

13. Life Assurance v/s Life Insurance

The basic difference between life insurance and life assurance is the tenure of coverage. Life insurance provides you coverage if you die within the policy term , However, in life assurance plans, the coverage is for the entire lifetime.

14. Death Benefit

It is the amount payable to the beneficiary if the person whose life is insured dies.

15. Maturity Benefit

It is the sum assured alongside the bonuses that your insurance company pays when you have survived the entire policy term.

16. Surrender Value

If the policyholder decides to discontinue  the policy before maturity, then the surrender value is payable by the insurance company to the policyholder.

17. Vesting Age

Any age where the insured person will be eligible to receive the payouts applicable against the policy. This typically applies to pension plans.

18. Claim Settlement Ratio

The ratio of the number of claims honoured to the customers by the insurance companies against the total claims received by the company. It is an indication of how efficiently claims are managed by the insurance company. The higher the claim settlement ratio, the better it is for the insured.

19. Beneficiary

The person or entity who is entitled to receive the claim amount and any other benefits upon the death of the insured or upon the maturity of the policy. It is akin to the nominee in any other investment opportunity.

20. Riders

Also called an add-on, which offers extra benefits that the policyholder can avail of on top of the basic life insurance policy. These riders will be attached to the base policy and will require additional premium payment for coverage.

21. Issue Date

The effective date on which your policy is approved and your insurance coverage begins.

22. Free Look Period

Upon issuance of the life insurance policy, the policyholder will be given 15 days (30 days in case of electronic policies or policies availed through distance mode) from the date of receipt of the policy document to review the terms and conditions. If they are not conducive, then the policyholder is allowed to cancel the policy at no cost.

23. Porting

Portability allows the policyholder to port your existing insurance policy to another insurance provider of their choice by retaining the pre-existing conditions and waiting for period exclusions (as they have already completed the same with the previous insurer). However, this facility is available only with health and motor insurance plans and not with life insurance.

24. Migration

Migration is the process of shifting your existing health insurance policy to a similar policy within the same insurance company.

In conclusion:

Hope this note helps you in your decision-making. Your research should not end here. You may have to compare plans and their features, understand the inclusions and exclusions of the insurance policy and choose the one that aligns best with your needs. In case you need help with your decisions, do contact the experts at Tata Capital Wealth, and we will help you decide the best insurance plan for you and your family.

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