Key terms associated with Life Insurance

Tue, 20 Aug 2024

5 mins

Navigating insurance can be daunting with its myriad of terms. Understanding key concepts like life cover, premium, and premium payment term is crucial for making informed decisions. This blog will break down these essential terms, helping you grasp the basics and confidently manage your insurance needs. Let's dive in!
 

• What is Life assured in Life Insurance?

  Life assured is a term used in the context of life insurance to refer to the person whose life is covered or insured under a life insurance policy. In other words, the life assured is the individual whose life is being insured, and the policy provides benefits to designated beneficiaries upon the death of this individual.
  
  If you purchase a life insurance policy, you are the policyholder, and if the policy is covering your life, then you are also the life assured. If you purchase the policy to cover someone else's life, then they are the life assured. The beneficiaries are the people or entities who receive the insurance benefits when the life assured passes away, according to the terms of the policy.

• Who is Proposer in Life Insurance?

  In life insurance, the term "proposer" refers to the individual or entity who applies for and owns the life insurance policy. This person is responsible for filling out the application, paying the premium, and managing the policy. The proposer might be the same person as the life assured, or they could be a different individual, such as when someone buys a policy for a spouse or child.
  
  If you purchase a life insurance policy for yourself, you are both the proposer (the one applying and owning the policy) and the life assured (the person whose life is insured). However, if you purchase a policy to insure someone else's life, like your spouse, you are the proposer while your spouse is the life assured.
   

• What is Life Cover?

  Life cover in life insurance refers to the amount of financial protection or coverage provided by a life insurance policy. This is the sum of money that will be paid to the beneficiaries upon the death of the life assured. The life cover, also known as the death benefit, is intended to provide financial support to the beneficiaries or dependents after the policyholder's death.
  
  For Example: You purchase a life insurance policy with a life cover of Rs 1 Crore. This means that if you, as the life assured, pass away while the policy is active, the insurance company will pay One Crore to your designated beneficiaries.

• How to pick the right Life Insurance?

  The size of the life cover is typically determined based on factors such as:
  
  Financial Needs: How much your dependents would need to maintain their lifestyle, pay off debts, or cover future expenses.
  
  Income Replacement: Providing an income stream for beneficiaries to replace your lost earnings.
  
  Educational Expenses: Covering debts like mortgages or loans.
  
  Liabilities: Covering debts like mortgages or loans. Understanding life cover is crucial when buying a life insurance policy, as it determines the amount of financial support your beneficiaries will receive in the event of your passing.

• What is Premium?

  This is the amount of money that the policyholder pays to the insurance company to maintain the life insurance policy. Premiums can be paid in various frequencies, such as monthly, quarterly, semi-annually, or annually, depending on the policy's terms and the policyholder's preference.
  
  The premium amount depends on several factors, including the type of policy, the amount of coverage, the policyholder's age, health, lifestyle, and other risk factors.

• What is Premium Payment Term?

  This refers to the length of time during which the policyholder is required to pay premiums. It can vary based on the type of policy and the policyholder's choices.
  
  For example, in a term life insurance policy with a 20-year premium payment term, you must pay premiums for 20 years.
  Some policies offer limited premium payment terms where you pay premiums for a shorter duration, but the policy remains in effect for a longer period or even for a lifetime

• What is Policy Term?

  This indicates the duration for which the policy provides coverage or is in force. In term life insurance, the policy term might be 10, 20, or 30 years, after which the policy expires if the life assured is still alive. The policy term is affected when the coverage ends and when benefits are payable to beneficiaries. The policies with longer terms or whole life coverage, the insurance generally has a cash value component that can grow over time.