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Gone are the days when you would have to visit an insurance company or an agent’s office to buy a policy. Purchasing an insurance policy has become extremely easy today thanks to the internet.
You can complete all the formalities online and purchase the policy at the click of a button. While the process has become easier and quicker, the complete understanding of the important terms of insurance still remains unfulfilled.
Most of us who buy insurance policies, be it life insurance, car insurance, travel insurance, or health insurance policy, don’t completely understand everything mentioned in the documents.
One of the reasons for this is our inability to understand the terms in the policy document. Although these terms might seem complex, they are simple. Let us look at the top 10 insurance terminologies you should know.
The policyholder is the individual under whose name the policy is purchased. The policyholder can also be an organization in case of group life insurance policies. However, in certain cases, the policyholder might not be the one insured in the policy. The insured is the individual who is protected under the plan.
For example, a husband decides to buy an insurance policy for his wife. In this case, the husband is the policyholder, while his wife is the insured individual.
A nominee is an individual who is included in the policy by the policyholder. The nominee is the person who gets to avail of the benefits of the policy in case of the policyholder’s demise.
In life insurance, the beneficiary is the person who receives the compensation or other benefits upon the death of the policyholder or on the maturity of the policy. The name of the beneficiary is inculcated in the policy by the policyholder.
An assignment is a process where an insurance policy is transferred from the initial policyholder to a different individual. This is typically done if the original policyholder has offered the insurance policy as collateral for their loan. If the original policyholder expires, the new holder of the policy will be paid the benefits after the assignment.
For example, X has taken a personal loan of Rs.5 lakh against his policy and has made his bank the assignee. In the event of X’s demise during the policy term, the bank would be paid the amount first after the assignment is completed. If any balance amount remains after the loan is cleared, it is paid to the nominee.
A claim can be defined as a formal request from the policyholder to the insurer. This request is made for the insurer to compensate for the losses that have incurred to the policyholder and that are to be covered under the policy.
Every insurance policy provides coverage to the policyholder or the assured against some risk. This coverage or protection could range from life cover to certain ailments, accidents, etc. The coverage varies from policy to policy and is applicable for the tenure of the insurance contract.
There could be certain cases or parts of losses for which no protection is offered. These situations are termed exclusions. The policyholder is informed regarding such exclusions before the contract is finalized. For example, one common exclusion in life insurance policies is suicide. If the assured commits suicide, no or limited benefits are paid.
A certain amount of money is paid by the insured against the protection offered by the insurance company. This money is called the premium. The premium amount depends on various factors like the coverage, age of the policyholder, the sum insured, etc.
The maturity benefit is the amount paid to the assured after the completion of the entire policy term. Selective insurance companies and insurance plans offer a maturity benefit. A death benefit is an amount paid to the beneficiary if the policyholder expires during the policy term.
You can choose to increase the protection of your basic plan by using add-ons. These add-ons provided by the insurer are called a rider.
Today an insurance policy is not a luxury, but a necessity. We may be casual about not knowing these terms, but at the time of making a claim or understanding the policy, problems can arise. Being aware of these terms can help us make informed decisions and buy insurance according to our needs.