Mind your language: Walk the insurance talk

Term insurance

A pure insurance plan with no form of savings or investment. It provides life cover for a certain period of time; if the policyholder dies during the policy tenure, the benefit is paid to the beneficiary. But if the insured survives the policy term, no benefit is paid out.

Endowment policy

A life insurance policy in which a lumpsum amount is paid to the policyholder at the time of maturity (if s/he survives the tenure of the policy) or to the beneficiary (if the insured dies before the policy matures).

ULIPs

Unit-Linked Insurance Plans are combo products. A part of the premium goes to provide protection, while the rest is invested in equity, debt or a mix of both. The returns depend on the market performance of the specific asset class.

Annuity

An insurance contract aimed at providing a steady income in retirement. If annuity starts immediately after payment of a single premium, it is known as immediate annuity; if it starts after a specific date and the premium is paid over a period, it is known as deferred annuity.

Death benefit

The amount paid to the beneficiary of a life insurance policy or an annuity plan when the policyholder dies. The death benefit may be a one-time payment or it may be paid out at regular intervals over a period, depending on the policy features.

Lapse

The cessation of all benefits under a life policy due to non-payment of premium for the minimum stipulated period under the policy, which may vary between two and three years.

Maturity claim

The amount paid when an insurance policy matures.

Nominee

A person chosen by the policyholder to receive benefits under the insurance contract in the event of his/her death.

Participating policy

One where the policyholder gets a share of the profits of the life insurance company. Such policies not only give protection but also provide returns in the form of dividends or a bonus. These are also known as with-profit policies.

Renewal premium and revival premium

The amount to be paid by the insured at regular intervals to keep the policy alive and to avail of benefits is known as renewal premium. If a policyholder fails to pay the renewal premium, the policy lapses. To revive the policy, the policyholder has to pay a revival premium within a specified time-frame.

Rider

Covers offered as add-ons to the primary life insurance policy. The policyholder has to pay an additional premium for it.

Sum assured and

sum insured

The sum assured to a policyholder is the pre-defined benefit to be paid to the policyholder in the event of a claim. In the context of life insurance, the sum assured is decided while purchasing the policy. The policy terminates once the sum assured is paid. The sum insured is the amount that covers the cost of repair or compensation upon the occurrence of the insured event. In general insurance policies, including health insurance, motor and home insurance, the coverage is always to the extent of the sum insured.

An important difference between these two concepts is that in the case of the sum assured, the pre-determined amount is paid in full, regardless of the value of the damage at the time of the claim, whereas a sum insured policy only guarantees the exact value of the damage.

Surrender value

The amount proportionate to the extent of premium paid that the policyholder is entitled to receive from the insurer if s/he exits the policy before maturity. A policy will acquire surrender value if the premium has been paid for a minimum of at least two to three years.

Paid-up value

When life insurance premium is not paid on time, the policy lapses. But if the premium has been paid at least for two to three years, the policy will acquire a paid-up value, and will remain in force until maturity with a paid-up value.

Motor insuranceBumper-to-bumper cover

Also called zero depreciation cover, it is a comprehensive insurance policy that offers coverage for all fibre, rubber and metal parts of a car; no depreciation is deducted from the sum insured when the vehicle is damaged.

Deductible

The portion of any claim that is not covered by the insurer, and which has to be paid by the policyholder. In a car insurance policy, there are two types of deductibles: compulsory and voluntary. The compulsory deductible amount is fixed by the insurer and has perforce to be paid by the policyholder whenever a claim arises. In a voluntary deductible, the limit is chosen by the policyholder.

Insured declared value

The value that the insurer will pay if your car is completely damaged or stolen. In effect, this is the sum insured in a motor insurance policy, and this is the sum on which the insurer will calculate the premium. In the first year, the IDV is fixed based on the market price of the car; form the second year, it is the market price minus depreciation.

Third-party insurance

A statutory requirement under the Motor Vehicles Act, which covers damage to life or property of a third party by the insured vehicle.

The premium is fixed by the regulator and the liability is unlimited in case of an accident that causes bodily injury or loss of life.

Own-damage cover

An optional provisoin that insures your vehicles against theft or damage caused by, say, fire, earthquakes or floods. However, normal wear and tear of the vehicle, mechanical breakdown and damage attributable to war and nuclear explosions are not covered.

Health insuranceCashless insurance

The benefit offered to an insured person to avail of medical treatment at the insurer-designated network hospitals without having to pay from one’s pocket. Hospital bills (up to the sum insured) are settled directly by the insurance company.

Critical illness cover

It provides a lumpsum payment if the policyholder is diagnosed with any of the listed illnesses under the policy. A critical illness is a serious health condition; it generally includes cancer, heart attack, kidney failure, lung/liver disease, where treatment costs run from a few thousand rupees to lakhs.

Family floater

A family health plan that covers all members of the family under a single policy. The sum insured is shared between the members.

Network hospitals

Health insurance companies tie up with select hospitals, making them a part of their network to provide cashless service to their policyholders; these are called network hospitals.

No-claim bonus

The reward a policyholder gets for not making a claim during the year. When the policy is renewed the next year, the insurer bumps up the sum insured by a fixed percentage.

OPD treatment

An outpatient is someone who receives medical treatment without being admitted to hospital. Some health Insurance plans cover out-patient department (OPD) expenses too, helping the insured claim expenses, including routine check-ups or visits to clinics.

Pre-existing condition

A medical condition/disease that existed before one obtained a health insurance policy. Most insurance companies cover pre-existing illnesses after a waiting period of 36-48 months.

Sub-limits

A cap that the insurer places on the claim. It limits the extent to which the insurer will pay for the claims and specifies the extent to which you will have to pay. In health policies, generally, insurance companies place sub-limits on room rent, doctor’s consultation fee, ambulance charges and a few medical procedures such as cataract removal, knee ligament reconstruction, and so on.

Third Party Administrators

Professional agencies that function as an intermediary between the insurance provider and the insured. They coordinate the process of claim settlement. As TPAs associate with multiple insurance companies, they get critical mass and can thus leverage technology and deliver services in a cost-effective manner.

Waiting period

The period that must pass before your healthcare coverage can begin. There are different types of waiting period: for instance, for pre-existing diseases. As a standard clause, most health insurance companies do not cover pre-existing diseases for two to four years.

Top-up

A top-up plan supplements a base health insurance plan by providing additional coverage above the sum insured on the base plan. Top-up plans come with a threshold limit. They pay up for claims (hospitalisation expenses) over and above the threshold limit (this should be basically the SI in your base cover).

COMMENT NOW