Important Terminologies in Term Insurance

Term insurance is like an umbrella - it may seem unnecessary on a sunny day, but it becomes invaluable when a storm hits. As Amit Jhingran, MD & CEO of SBI Life Insurance, aptly states, 

Life insurance should not be seen as an unnecessary expense but as a crucial tool that protects all other financial goals. Nevertheless, many policyholders ignore a critical step despite its significance: reading the fine print.

You run the danger of selecting the incorrect plan if you are unfamiliar with important term insurance words, or worse, your loved ones may have their claims denied when they most need assistance. This blog explores 15 key terms that all policyholders must be aware of to make wise, safe, and well-informed choices. Read on!

15 Term Insurance Terminologies You Must Understand

Here's a breakdown of the standard terms used in term insurance:

Serial Number	Common terms used in term insurance	Meaning
1	Premium	The periodic payment you make to maintain your policy.
2	Sum Assured	The agreed amount will be paid to your nominee if you die during the policy term.
3	Policyholder	The person who owns the policy and is responsible for paying premiums.
4	Nominee	A person (typically a family member) designated to receive the death benefit if the insured passes away.
5	Grace Period	A grace period of 15 to 30 days is provided to pay a missed premium, after which the policy lapses.
6	Riders	Optional additions are available at a higher premium price, e.g., critical illness, accidental death, etc., that provide additional coverage.
7	Exclusions	Some events or causes, e.g., death due to drug abuse, are not covered under the policy.
8	Lapse	The policy lapses if premiums are not paid within the grace period.
9	Free-look Period	15-day (30 days for web purchase) timeframe wherein you can go through your policy and request a refund if unsatisfied.
10	Maturity Benefit	Not present in basic term plans. You will find it only in return for premium/hybrid plans, where premiums are returned if the insured outlives the term.
11	Death Benefit	The amount received by the nominee (including additional rider benefits) in case of death of the insured within the policy term.
12	Claim Settlement Ratio	The ratio of claims settled to claims settled in a year. A higher ratio indicates the creditworthiness of the insurance provider.
13	Underwriting	The insurer's internal evaluation of your health, age, lifestyle, and financial history determines risk levels and premium amounts.
14	Surrender Value	The amount payable when you choose to surrender the policy mid-term. For term policies, these amounts are normally zero or minimal unless it is a return-of-premium plan.
15	Revival Period	The period (usually up to two years) during which a lapsed policy can be reinstated by paying pending premiums and possibly undergoing a medical check-up.

Understanding these 15 term insurance terminologies can assist you in evaluating plans correctly and avoiding costly claim delays or denials.

Also Read: Last Chance to Save ₹1 Lakh+ on Term Insurance - Act Before April 25!

How Term Insurance Terminologies Impact Your Policy

Let us understand how some of these common terms used in term insurance influence your policy:

Example 1: Riders and Premiums

Rohan, a 32-Year-old professional, opts for a ₹1Crore term insurance and adds a critical illness rider.

This increases his yearly premium from ₹9,000 to ₹12,500. Later, A few years later, Rohan was diagnosed with cancer. Thankfully, the critical illness rider provided an additional ₹25 lakh as a lump sum for treatment, ensuring his family doesn't worry about hospital costs. 

This shows how a modest premium increase can significantly improve coverage.

Pro Tip: Compare base plans and riders across insurers using AssetPlus. You can easily compare premiums and benefits side by side before deciding.

Example 2: Exclusions in Fine Print

• Anita, aged 28, purchased an online term policy but skimmed through the exclusion clause. She had not revealed her pre-existing cardiac condition during underwriting.

• When she died, the company refused the claim, citing nondisclosure and exclusion related to cardiac illness.

• It highlights why readers must fully disclose health information and read terms carefully to avoid claim rejections later.
  

Example 3: Lapse and Revival Period

• Ravi, a 40-year-old marketing manager, lost his job and missed three premiums. His policy lapsed, and he assumed revival wasn’t possible.

• After consulting his advisor, he learned about the revival period. Within 6 months, he reinstated the policy by clearing dues and undergoing a health test.

• Had he delayed beyond the revival window, he would have faced much higher premiums or even rejection due to age.
  

Common Misconceptions Clarified

Here are some term insurance misconceptions:

"Term insurance is wasteful if no one dies."

This is one of the most common misconceptions. Term insurance is a risk management tool. Consider it like a fire extinguisher or medical insurance. You never hope to use it, but its presence provides peace of mind. Paying ₹10,000 per year for ₹1 crore cover shields your family from financial devastation in the event of premature death.

Pro Tip: Use AssetPlus calculators to estimate your cost-to-cover ratio and compare it with your existing protection gaps.

"Endowment plans and term plans are the same."

Many assume endowment or money-back plans are the same as term insurance. Endowment plans provide returns but at much higher costs. Term insurance offers pure life coverage, which is ideal if you want affordable, high-value protection.

Bonus Tip: Join AssetPlus Webinars to easily understand the differences between term, ULIP, and endowment plans.

"My term plan won't support my financial dependents."

Many misunderstand the true purpose of term insurance. If you are the only earner, your death could leave your family in financial strain. A good term plan provides a lump sum (sum assured) that replaces income, clears debts, and funds life goals.

Pro Tip: Consult an expert using AssetPlus tools to estimate your family’s required coverage and avoid underinsurance accurately.

Also Read: How to Save Money on Your Term Insurance Premium

To Wrap Up

Understanding the key terminologies of term insurance is crucial before investing. This knowledge empowers you to compare policies more effectively, ensuring you select the right coverage to protect your family's financial future when needed.

Before committing to any policy, take the time to carefully review each clause- especially riders, exclusions, and the claims process. If anything seems unclear, don’t hesitate to seek expert advice.

Platforms like AssetPlus provide personalized guidance, helping you easily navigate the complexities of term insurance so you can make confident, well-informed decisions for your family's security.

FAQ:

What Is Term Insurance?

• Term insurance is a life insurance policy that offers financial protection for a fixed duration. If the insured dies during this term, the nominee receives a death benefit. It’s pure life cover-no maturity benefit unless you opt for a return of premium plan.

Who Is the Policyholder and the Life Assured?

• The policyholder is the person who buys and manages the policy, while the life assured is the individual whose life is covered. They can be the same or different people.

What Does ‘Sum Assured’ Mean?

• Sum assured is the guaranteed amount paid to the nominee if the life assured dies during the policy term. It defines the core benefit of the policy.

What Is the Role of a Nominee?

• The nominee is the person appointed to receive the policy’s death benefit in the event of the life assured’s demise. Nomination ensures smooth claim settlement.

What Is a Premium and How Can It Be Paid?

• Premium is the payment made by the policyholder to keep the policy active. It can be paid in regular, limited, or single installments, either monthly, quarterly, annually, or once.

What Is the Policy Term in Term Insurance?

• The policy term is the number of years the policy remains active. It typically ranges from 10 to 40 years and should align with the insured’s financial responsibilities.

What Is a Death Benefit and a Maturity Benefit?

• Death Benefit: The sum assured paid to the nominee if the insured dies during the term.

• Maturity Benefit: Usually not available in pure term plans, but ROP (Return of Premium) plans refund premiums if the insured survives the term.

What Are Riders in Term Insurance?

• Riders are optional add-ons that provide extra coverage - like critical illness, accidental death, or disability cover - for an added premium.

What Is a Claim in Term Insurance?

• A claim is the formal process where the nominee requests the insurer to pay the death benefit. It requires documents like a death certificate and policy copy.

What Is the Free Look Period?

• It’s a 15–30 day window after receiving the policy during which the buyer can cancel the plan for a refund if unsatisfied with the terms.