Life insurance terms explained

Everybody knows the importance of buying a life insurance. However before buying one, it is essential for you to know some important life insurance terms. Why? So that you can choose the insurance policy that offers a life insurance protection suitable for you. Understanding these life insurance terms will help you choose the best life insurance cover for you, with the optimum level of ;life insurance protection.

Beneficiary: Person(s) whose names have been mentioned in the policy to be eligible to get the proceeds of your policy, in case of your death.
Cash/Surrender Value: The cash amount available for obtaining loans and which can be withdrawn in case of emergencies. If you use this value, your death benefit will reduce death benefit and increase the chance of policy lapse.
Sum assured: This is the minimum amount guaranteed to the policy owner. It determines the amount you will pay towards premium.
Premium: This is the amount you to the insurance company in order to enjoy life insurance protection. The amount is decided by your age, type of insurance policy chosen and your health situation. If you are young, healthy and opting for a plain term plan, your premium will lower than if you are older, have some debilitating condition and opting for a unit link insurance plan.
Endowment policy: A policy that provides life insurance protection as well as an investment avenue. It invests its corpus in debt instrument. The life cover lasts for the term of policy selected.
Policy term: This is the duration for which you are paying premiums to avail of life insurance protection.
Term policy: A policy that offers only the life cover without any investment option. Usually, this is the cheapest policy.
Whole life policy: A policy that offers life insurance protection for as long as you are alive, along with returns on the premiums paid. The corpus is invested in various debt instruments.
Unit link insurance policy: A policy that provides life insurance protection as well as returns on the premiums paid. This policy can invest across debt, equity or a mixture of both.
Policy holder: The person on whose name the policy is purchased. It could the person who pays the premiums or another person who has been gifted an insurance policy.
Paid-up policy: A policy that is in force but without having to pay further premiums.
With profits policy: A policy in which the insurance company pays the policy holder a share of its profits in form of bonus. This can be either annually or when the policy expires.
Policy loan: A loan offered by the insurance company to the policy holder from its general funds, by using the policy’s cash value as a security for the loan.

These are some of the common life insurance terms you will find being used by the insurance brokers as well as insurance companies. These terms will definitely help you in short listing the most suitable insurance policy for you.