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Understanding your Insurance Policy Document?

    IndianMoney.com Research Team | Monday, July 27,2009, 10:15 AM
 

Insurance Policy Document:

Insurance Policy is a well defined contract document which clearly illustrates the terms and conditions, premium, extent of coverage, deductions under different heads, etc. of an insurance contract. It is completely a legal paperwork in which all possible details are mentioned. The policies are the basic framework of an insurance contract, the entire contract between the client and the insurance company is based on this policy. It is the backbone of the whole contract. In case of default by any one of the party, he would be subjected to legal consequences.

Insurance Policy can be of various types such as Life insurance, Medical Insurance or General insurance. The fact is that more than 80% of the people/ policy holders are not able to understand the technical terms/ terminologies used in the offer document and in the policy document. People blindly believe the words of insurance agents, this helps them to misguide the people and to sell them wrong products so that they can earn more commission.

Major aspects covered under Insurance Policy

Following are the major aspects covered under an Insurance Policy :

  • Type of Insurance (Life, Medical or General)
  • Purpose of the Insurance
  • Premium Amount
  • Assured amount of money to be reimbursed by the insurance company at the time of maturity or in case of certain loss.
  • Parameters issued by the specific applications
  • Coverage limit of the plan/scheme
  • Requirements to be fulfilled for initiation of the plan/scheme, etc.

In this article we will give you a brief about the important terminologies used in insurance policy. This will help you in analyzing the scheme by reading the offer document. If you are able to understand the concepts then no one can cheat you by misinterpreting the terms and conditions of the scheme. Primary objective of IndianMoney.com is to make all Indians financially literate so that no one will be cheated by others in financial matters. We are always happy to clear your queries on Financial Products such as Insurance, Mutual Funds, Demat a/c, Bank a/c, Bank loans, etc. To clear your queries please login to www.IndianMoney.com.

Terminologies

Following are the important Terminologies used in Insurance.

1. Age limits


Predetermined minimum and maximum ages below and above which the company will not accept applications or may not renew policies.

2. Annuity


It is a scheme under which certain amount is paid at yearly/ half yearly/ quarterly/ monthly intervals.

3. Annuity Plans


These plans contribute for a "pension" to be paid to the policyholder or his spouse. In the event of death of both of them during the policy period, a lump sum amount is provided for the next of kin.

4. Beneficiary


The person or entity (e.g. corporation, trust, etc.) named in the policy as the recipient of insurance proceeds on the event of death of the insured.

5. Bonus


Bonus is the amount added to the basic sum assured under a with-profit life insurance policy.

6. Claim Amount


It is the amount payable by the insurer under a policy during the time of a claim

7. Days of Grace


Policyholders are expected to pay premium on due dates. A period is 15-30 days is allowed as grace to make payment of premium; such period is known as days of grace.

8. Death Benefit


A payment made to the beneficiary on the death of the insured person.

9. Deferment date


It is the date on which the deferment period ends.

10. Deferment period


Period between the date of subscription to an insurance-cum-pension policy and the time at which the first installment of pension is received.

11. Grace Period


A specified period after a premium payment is due, in which the policyholder may make such payment, and during which the protection of the policy continues.

12. Gross Premium


it is the premium paid by the policyholder.

13. Guaranteed Addition


Guaranteed additions are calculated at a rate per every thousand of sum assured. They are added to the basic sum assured and are payable on admittance of claim. This benefit is allowed only for the year for which premiums are paid.

14. Insured


The person whose life is covered by an insurance policy.

15. Loyalty Additions


The loyalty addition is given upon the maturity of the policy. It is a small percentage of the sum assured. In other words, loyalty addition is the difference between the performance of the insurance scheme and the guaranteed additions.

16. Maturity


The date upon which the face amount of a life insurance policy is paid to the policyholder.

17. Nomination


An act by which the policyholders authorizes another person to receive the policy money. The person so authorized is called Nominee.

18. Life Assured


Life Assured refers to the person whose life is being insured.

19. Nominee


Nominee is the person who is authorized by the policy holder to receive the policy money on settlement of claim.

20. Premium


It is the regular periodic payments that a policy holder makes to an insurer in exchange for the insurer's obligation to pay benefits on the occurrence of a contingency.

21. Policy


Is the legal document that has the terms and conditions of the insurance contract.

22. Policy Period


The period during which a Policy contract covers contingency.

23. Premium Waiver Benefit (PWB)


Premium waiver benefits are the benefits, which can be availed under children's policies, wherein the future premiums payable up to vesting date are waived in the event of death of the proposer before the vesting date.

24. Paid-up Value


Paid-up value is the reduced amount of sum assured paid by the insurer in case of discontinuation of the payment of premiums after paying the full premiums for the first three years.

25. Premium


Premium is the amount paid to secure an insurance policy.

26. Proposal Form


It is a form, which is to be completed for securing an insurance policy.

27. Proposer


Proposer is a person who proposes the insurance policy.

28. Risk


The obligation assumed by the insurer when it issues a policy is known as risk.

29. Rider


A provision attached to a policy that adds benefits not found in the original policy or that changes the original policy.

30. Sum Assured


Sum assured is the amount that an insurer agrees to pay on the occurrence of an uncertain event.

31. Surrender Value


Surrender value is the amount payable to the policyholder on termination of insurance contract before maturity.

32. Survival benefit


The payment of sum assured to the insured person, which has become due by installments under a money back policy.

33. Underwriting


The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk. In simple terms the process of evaluating and selecting risk is known as underwriting.

34. Vesting Bonus


It is the Bonus, which the insurer announces after evaluating its assets and liabilities, and that is added to the sum assured under a policy.

35. Vesting Date


This is the date from which the life assured i.e., child (in child plan) becomes the absolute owner of the policy.

If you are able to understand all these concepts, you don’t need the help of an Insurance advisor/agent to understand the features of a Policy and you yourself can be your advisor. Use this article as a reference material to analyze the offer document or Insurance Policy.

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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