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What are Important Insurance Terms?

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What are Important Insurance Terms?

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If you’re on the quest to understand insurance better, one of the first things you need to get a better grip on is insurance jargon. Many of the insurance terms commonly used in financial guides can be quite confusing if you don’t know your  basics. 

But don’t you worry, in this piece we’ll take a deep dive to understand the meanings of the most important insurance  terms out there. So, buckle up and let’s decode the jargon right away. 

Life insurance

Life insurance is a cover taken on the life of an individual, who is known as the insured person. In case the insured person passes away, the insurance provider will pay out the benefits due under the insurance plan. There are different types of life insurance plans, as outlined below.

Term insurance

Term insurance is the simplest and most affordable kind of life insurance. It only offers a life cover and no other added benefit.

Endowment plans

Endowment plans are life insurance plans that offer the dual benefits of a life cover as well as guaranteed, low-risk returns.

Unit Linked Insurance Plans (ULIPs)

With ULIPs too, you get two primary benefits, namely insurance and investments. In addition to a life cover, a ULIP also gives you the opportunity to invest in different market-linked funds.

Annuity plans

With annuity plans, you get the benefit of a life cover in addition to the advantage of regular annuity payouts. This can be beneficial for people who have retired.

General insurance

General insurance, also known as non-life insurance, is a broad category that includes various kinds of policies. As the name indicates, this category includes all kinds of insurance that is not taken on the life of an individual. Here is a preview of the different types of general insurance.

Health insurance

Health insurance is a kind of insurance that covers the risk associated with the insured person’s future medical expenses. In case the insured person is hospitalised or requires any surgery that’s covered by the plan, the insurance provider will bear all or part of the costs.

Motor insurance

Motor insurance is insurance that covers the costs of repairs and replacement of vehicles like cars and two-wheelers. In case your car, bike or scooter is stolen or damaged in an accident or as a result of any natural disaster, your insurer will cover all or part of the costs involved.

Travel insurance

When you travel to a new place, you could lose your baggage along the way. Or your flight may be delayed or cancelled. You could even fall sick during your trip. These kinds of unexpected expenses are covered by travel insurance. 

Home insurance

Home insurance is a general insurance that covers the costs of repairing damages caused to your house, due to any natural or man-made disaster. It may also cover the loss of any belongings due to theft or burglaries.

  • Policy term:

Every insurance policy offers coverage for a specified period of time. This is known as the policy term, and the benefits offered by the insurance policy are only valid during this period. If the insured incidents occur after this period, your insurer will not cover them.

This period can vary from a specific number of days to a specific number of years. For instance, in the case of travel insurance, the policy term is typically specified in days. Alternatively, some insurance plans may also be valid till you attain a certain age. Life insurance plans are excellent examples of this. Typically, life covers are valid till you attain 65 years of age. Whole life insurance, on the other hand, is valid till you attain 99 or 100 years.

  • Death benefit:

This insurance term is exclusive to life insurance which is a cover offered on the life of the insured person. The death benefit is the payout made by the insurance service provider in case of the insured person’s demise. This benefit is paid out to the nominee mentioned under the plan. 

  • Maturity benefit:

Also relevant in the context of some kinds of life insurance, this insurance term refers to the benefits paid out to the policyholder at maturity. If the insured person survives the policy term, the insurer pays out these benefits to the insured person. Typically, endowment plans and whole life insurance plans offer maturity benefits, while term insurance plans do not.

  • Premium:

Premium is the fee that you pay to your insurance provider in order to enjoy the benefits of the coverage they provide. This premium may be a one-time, lump sum payment. Or, it could be paid periodically, over a specified number of years. 

  • Premium payment term:

This is the period over which you will have to pay the premium to the insurance service provider. It may be equal to or shorter than the policy term.

  • Grace period:

If you fail to pay your premium on time, the grace period begins. It is the window of time during which you can catch up on your delayed premium payments without your policy lapsing. However, you may be charged some nominal penalty for the delay.

  • Deductible:

This is another insurance term that is specific to certain kinds of general insurance policies like health insurance or motor insurance. It is a certain sum that you need to pay first before the insurance benefits kick in. Or, in other words, it is that amount that you need to bear out-of-pocket before your insurer steps in and pays for the rest of the bill.

For instance, let’s say you have been hospitalised and your medical bills add up to Rs. 15,000. Now, if your deductible is Rs. 4,000, you will have to pay this sum out of pocket. Your insurance provider will then pay the rest of the bill, i.e. Rs. 11,000.

  • Insurance claim:

This is another important insurance term. It is essentially a formal request that you place with your insurance provider when any of the insured incidents have occured. The claim intimates the insurer of this, and notifies them that they need to pay out the benefits due. Once you submit your insurance claim, the insurance provider will assess it before approving or rejecting it as appropriate.

  • Insurance riders:

Insurance riders are add-on covers that you can buy with your base plan. They offer additional benefits over and above the coverage offered by your primary insurance policy. You will have to pay an additional rider premium for the riders that you choose. 

The insurance riders available with a policy vary based on the type of life insurance. Here is a preview of the different kinds of riders and what they cover.

Summing up 

Well, this should give a pretty good overview of what the most commonly used insurance terms mean. So the next time you hear someone talking about deductibles or grace periods, you’ll know what they’re on about. Furthermore, knowing what these insurance terms mean can also help you understand the features and benefits of a policy better. That way, you can make an informed decision about what kind of policy to purchase for your various insurance requirements.

Frequently Asked Questions (FAQs)

  • What are some of the terms commonly used in insurance?

There are many insurance terms that are frequently used. Some of these include policy term, premium, insurance claim, deductible and death benefit, among others. The more you read about insurance, the better you will be able to decipher what these insurance terms mean.

  • What do you mean by insurance in simple terms?

In simple terms, insurance is simply the transfer of risk from you — the insurer person — to the insurance service provider. It is a legal contract, and the insurance provider takes on the risks associated with various financial contingencies like the loss of a car or the death of a person. In return for taking on this risk, the insurer charges a premium from the insured person.

  • Are health insurance premiums tax deductible?

Yes, health insurance premiums are deductible from your total taxable income as per section 80D of the Income Tax Act, 1961. You can claim a deduction up to Rs. 25,000 for health insurance plans taken for yourself, your spouse or your children. Additionally, you can claim an extra deduction up to Rs. 25,000 on policies taken for your dependent parent. If your parents are over the age of 60, the deduction limit is Rs. 50,000.

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