Term insurance can feel like entering a maze of jargon and legalese with a number of specific terms. While the concept of term insurance itself is straightforward – providing financial security in the face of life’s uncertainties – comprehending the nuances of its terminology can seem overwhelming.

However, grasping the key terms found within term plan documents is crucial for ensuring you choose the right policy to safeguard your loved ones’ future.

Here is a breakdown of some important term insurance lingo to equip you with the knowledge to navigate this vital aspect of financial planning confidently.

1. Claim

When a policyholder passes away during the policy term, the nominee submits a claim to the insurance company to receive the predetermined sum assured. The insurer’s claim process can differ between companies but usually involves submitting documents such as the death certificate, hospital records, identity proofs and similar things.

The claim ensures financial support for the beneficiary in their time of need.

2. Death benefit/ Sum assured

The death benefit/ sum assured is a guaranteed predetermined sum that is given to the nominee upon the insured’s unfortunate passing during the policy term. This payout offers vital financial assistance to cover daily expenses and future financial goals of the family. 

The death benefit/ sum assured can be given as a lump sum or as regular monthly income. It helps maintain financial stability for the beneficiary and serves as a lifeline during a difficult period, providing reassurance that your loved ones will be financially supported after you. 

3. Exclusions

Exclusions include circumstances or events that are not covered by the policy. For example, most term insurance policies have a suicide exclusion clause. If the insured dies by suicide, the insurer may not pay the death benefit. Similarly, policies often specify that they will not cover deaths resulting from the insured’s involvement in illegal activities. Certain policies may exclude coverage for deaths resulting from acts of war or terrorism. Some policies may also exclude coverage for deaths occurring while the insured is participating in hazardous activities, such as skydiving, mountaineering or professional sports.

It is essential to carefully read the policy’s exclusions to understand the limitations of coverage and ensure that their insurance needs are adequately addressed.

4. Grace period 

The grace period begins after the premium due date. It provides you with an additional window of time during which you can make late payments without facing penalties or risking policy lapses. The period can typically range from 15 to 30 days, as per the terms of the policy and the insurer’s guidelines.

The grace period helps you maintain continuous coverage and safeguards your financial security in the face of life’s uncertainties. It ensures that your insurance coverage does not lapse even if you have temporary financial constraints.

5. Nominee

The nominee is an individual designated by the policyholder to receive the insurance payout in case of a tragedy during the policy term. The nominee can be any person chosen by the policyholder, such as a spouse, child, parent or sibling. The policyholder may also designate multiple nominees and specify the percentage of the death benefit each nominee should receive.

It is essential for the policyholder to carefully consider their choice of nominee to ensure that their wishes regarding the distribution of the death benefit are accurately reflected.

6. Policyholder

The policyholder is the individual who purchases the term insurance policy from the insurer. As the owner of the policy, the policyholder pays the premium to the insurer in exchange for coverage. The policyholder also agrees to the provisions of the policy and ensures they are accurately carried out. This includes making premium payments on time, adhering to the terms and conditions of the policy and ensuring that accurate information is provided during the application process.

The policyholder has complete authority to select the coverage amount, policy term and any additional riders. They also designate the nominee who will receive the death benefit in the event of their absence.

7. Premium

The premium is the amount paid by the policyholder to the insurer to maintain the term insurance coverage. The premium amount can be influenced by various factors, including the policyholder’s age, gender, occupation, health status, lifestyle habits and the sum assured.

Younger and healthier individuals typically pay lower premiums, while older individuals or those with higher-risk occupations may face higher premium rates.

8. Rider

Riders are optional add-ons to the base term insurance policy that provides enhanced coverage for specific events not covered by the standard policy. They allow you to customise the coverage to suit your individual needs and circumstances better.

Common riders include coverage for critical illness, accidental death cover, terminal illness benefits and waiver of premium, among others. While riders offer valuable benefits, they typically require an extra premium payment on top of the base premium.

9. Life assured

The life assured is the individual whose life is insured under the policy. The life assured may or may not be the same as the policyholder. However, the policy revolves around the life assured. Factors such as age, gender, lifestyle, occupation and health status of the life assured heavily influence key aspects of the policy, including premium rates, coverage amount and eligibility criteria.

10. Term insurance calculator

A term insurance calculator is an essential online tool provided by insurance companies to help individuals estimate the coverage amount and premium cost for a term insurance policy. The tool allows you to input information such as age, gender, income, desired coverage duration and sum assured and receive instant calculations of the recommended coverage level and corresponding premium.

Conclusion

Familiarising yourself with the key terms associated with term insurance is paramount to making informed decisions about your coverage. By understanding these terms, you can better grasp the nuances of your insurance plan, evaluate your options more effectively and select policies that align with your financial goals and protection needs.  

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