Life Insurance Made Easy

Insurance can be tricky whether you're a first-time buyer or you've had a policy for years. Many people don't even know most of the benefits of their policy or understand the terms and conditions when they sign their name and pay the premium. Here's a few things about insurance policies that everyone needs to know - and in simple terms!

With everything in life - at least the things that are complicated - the first thing you need to do is familiarise yourself with some of the insurance jargon and what it means.

Life Insured - Sometimes referred to as the Life Assured, it is the person who is covered by the insurance policy. So that means the life insured receives the benefits, right? Wrong!

The life insured is the person who is insured for say Rs.1 crore. If the life insured dies, then the nominee will receive the benefit.

Policyholder - A policyholder is usually synonymous with life insured except in a few cases. For example, when parents take out life insurance policies for their child, in those cases the policyholder will be the father or mother (whoever pays the premium) and the child will be the life insured.

Beneficiary - The beneficiary is the nominated person (someone the life insured likes!). This person is entitled to receive the benefits from the policy once the life insured is no more. Usually, people nominate their spouse, child, parents... Basically, the life insured picks somebody who they want to receive money from the policy.

Premium - This is simply the payment the policyholder or life insured needs to make in order to purchase the plan. The premium may be payable as a single one-time payment, annual, bi-annual, quarterly or monthly payments.

Policy term - Sometimes referred to as tenure, this is the duration of the policy. Life insurance policies can cover you for 1 year or 2 years or 5 or 10, you get the gist. You can also take life insurance policies for up to the age of 100.

Premium payment term - This duration may be the same or lesser than the policy term depending on the insurance plan. Premium payment term is the number of years you need to pay premiums towards the policy. Sometimes, you will only need to pay for 10 years and the life insurance will cover you for 20 years.

Sum assured - The amount of money the beneficiary will receive upon the death of the life insured. This is also known as the claim amount.

Survival benefit - If you survive till the end of the policy term, you might receive a survival or maturity benefit. This means if you don't die, you'll get the premiums you paid back plus a few more other benefits.

Renewal - Upon the maturity of the policy, you will be given the option to renew your policy and continue to be covered under the policy.

Grace period - Insurers usually grant a period of 30 days from the due date to pay the premium. Taking into consideration that people may have their own financial expenses that are of high priority than the life insurance, insurers grant this grace period.

Lapse - If you fail to pay your premium, after the insurer has sent reminders and the grace period is over, your insurance policy will lapse.

Reinstatement - If you want to reinstate or revive your old lapsed policy, you can do so by paying up all the unpaid premiums plus interest. Usually insurers allow you to reinstate your policy within 2 or 3 years from the due date of the first premium you didn't pay.

Exclusions - These are the events under which the life insurance company will not pay any benefits. Usually suicide is an exclusion for the first year of the policy. Other exclusions include death due to dangerous activities, dangerous sports, and so on.

Free-look period - This is a period of 15 or 30 days granted to the buyer of the policy. The buyer can read the policy, review the terms and conditions. If they are not satisfied, they can return the policy and receive a refund of the premium. The insurer will deduct any charges borne to issue the policy in the first place.

Now that you know what all of these terms mean, life insurance plans will make a whole lot more sense. Read the offer document carefully before you make a decision. Always be sure to look for the following:

• The amount of premium you have to pay
• The premium payment tenure
• The sum assured
• Maturity benefits

Life insurance is beneficial to those who have dependants. In case of the death of the life insured, then the beneficiary will receive a lump sum or payments in instalments. This will ensure that the dependant has some source of income once the life insured is no more.