Life Insurance Glossary A to Z You Should Know

When reading a life insurance policy document, there are several terms that you may not comprehend or know the meaning of. Read on to learn the glossary of commonly used life insurance terms.

A life insurance policy is a very crucial document, defining the financial protection that your beneficiary/loved ones would be entitled to receive in case of your unfortunate demise. Now, this document contains a number of terminologies, not all of which are familiar to a layperson. It is however important to understand the basic essence of some of these terms commonly used in a life insurance policy so that you know what it entails for you and your loved ones in your absence.

To make things simpler for you to understand, we list here a glossary of life insurance terms, most of which are often seen in every policy document

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What is a Life Insurance Policy?

A term insurance plan is a life insurance policy that offers you financial coverage in case of loss of life during the term. You pay a yearly premium against the policy to the insurance company. This policy gives death coverage to the policyholder and offers the sum assured to the family or next of kin.

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A-Z Glossary of Life Insurance Terms that You Should Know

Here are some of the most popular and commonly used terms used in life insurance plans. We hope that this glossary will help you understand the life insurance terminologies better and make an informed and educated decision before buying a plan.

1. Annuity: It refers to a contract between the insurer and the insured, assuring a regular amount of money to the latter for their entire lifetime.
2. Beneficiary: Refers to the person whom the insured has chosen to receive the insurance benefit in case of an untimely and unfortunate demise. The beneficiary’s name is then put in the life insurance policy as well.
3. Claim Settlement Ratio: It is one of the most important determining factors before purchasing an insurance plan, particularly term life insurance. The Claim Settlement Ratio or CSR refers to the total number or ratio of claims settled by the insurance company as against the number of claims received or filed by the insured during a given financial year. Note that the higher the CSR of a company, the better its reputation or credibility is in the market.
4. Death Benefit: Refers to the amount of money that the insurance company is required to pay to the beneficiary or nominee of the insured at the time of death of the latter, to support the family of the insured financially.
5. Extra Life Option: This is an additional benefit offered by some insurance providers where the insured is entitled to receive twice the amount of sum assured mentioned in the policy due to an untimely demise due to accident.
6. Free Look Period: This feature is available on all new life insurance plans bought. It is an option given to the new policyholder to return the policy that they have purchased to the insurance company during a specific time period, known as the free look period.
7. Group Life Insurance: A type of life insurance plan wherein a single policy provides coverage to a large group of individuals. These kind of plans are mostly offered by employers and organizations to provide coverage benefits to their employees.
8. Issue Date: Refers to the exact date when the insurer accepts and approves the application submitted by a prospective policyholder for buying life insurance.
9. Joint Life: A type of plan allowing both the partners or spouses to be joint owners and beneficiaries of a life insurance plan. This is done to ensure that both the partners are entitled to receive the insurance proceeds in case of death of any one of them.
10. Keyman Insurance: Refers to an insurance policy bought for the key or the most important person in a business organization. In case of small business companies, key person generally refers to the owner, founder, or an employee at an important position in the company. This type of insurance plan is generally purchased to ensure that the key person of the organization is financially covered.
11. Life Assured: Refers to the individual who is also the insured under the life insurance plan. Note that life assured may not necessarily imply the policy’s owner.
12. Mortality: Refers to the rate of the total number of deaths recorded among a specific number of people in a given period of time.
13. Non-Cancellable Policies: Refers to a type of insurance plan that cannot be canceled by the insurer until the time the policyholder keeps paying the premium amount.
14. Occupational Hazard: Refers to any dangerous situation in a work environment or job that may increase the likelihood of an accident, illness, disability, or even death of the insured under the plan.
15. Premium: Refers to the amount of money that the policyholder is required to pay to the insurance company at regular intervals in order to maintain the insurance plan. This means that in case of non-payment of premium, the insurer has the right to terminate the policy and cancel all benefits derived from it to the policyholder.
16. Riders: Refer to the add-on or additional insurance plans purchased over and above the base life insurance policy in order to receive extra coverage or protection. There are a number of different riders that can be bought in addition to the insurance policy purchased to avail various extra benefits.
17. Surrender Value: Refers to the amount of money payable to the insured by the insurance company in case the former decides to voluntarily discontinue or terminate the plan for some reason.
18. Tax Benefits: Refer to the deductions provided under the Income Tax Act, 1961 to the policyholder for the premium payable under life insurance plans.
19. ULIPs: Short for Unit Linked Insurance Plans, referring to a type of financial product provided by a number of insurance companies in India. The primary feature of ULIPs is that they offer the combined advantage of investment as well as insurance to the owners.
20. Vesting Age: Refers to the age when the individual is entitled to start receiving pension from the insurance-pension policy of life insurance.
21. Whole Life Policy: A type of life insurance plan providing financial protection to the insured for an entire lifetime, thus the name whole life policy.    

Read More: Types of Life Insurance Policies in India

Wrapping Up

The terms mentioned in this blog are just some of the many terminologies used by most life insurance companies in India. In case of any doubt, make sure to enquire from your insurer. You can look for the best life insurance policy offered by the Life Insurance Corporation of India (LIC) online and choose the one that ideally meets your financial requirements.

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