Are you thinking of buying insurance coverage but are unsure where to begin? We realize how nerve-wracking purchasing your first insurance coverage can be. First things first, take off by knowing the terminologies. We have listed below some key insurance terms used extensively.
Terminologies Used Frequently
Actual Cash Value (ACV)
Actual Cash Value is a method of determining the worth of insured property. The ACV is equal to the replacement cost minus depreciation.
Consider this: when you buy a car, you pay a certain amount of money. The value of your car gets lower, eventually. This phenomenon is depreciation. We subtracted depreciation from the original purchase price to calculate Actual Cash Value.
Agents are knowledgeable, qualified, and licensed professionals who assist you in finding the best policy by assessing your specific circumstances and life insurance requirements.
An annuity is a contract between you and an insurance company to pay a lump sum or a series of payments for regular payments that begin immediately or later.
A beneficiary is a natural or other legal entity that receives money or other benefits from a recipient.
The beneficiary of a life insurance policy, for example, is the person who receives the insurance proceeds after the insured passes away.
An insurance claim is a formal request made by a policyholder to an insurance company for coverage or compensation for a covered loss or policy occurrence. The insurance company has the authority to approve or deny the claim. If approved, the insurance company will pay the insured or a legitimate party on behalf of the insured.
When you buy a life insurance policy, you usually get a “free look period.” During this time, you have the option to cancel your policy without penalty. Depending on the insurance company and the state you live in, the free look period can last ten days or more, depending on the insurer.
If you cannot pay your policy renewal premium on time, the insurance company will grant you an extension in the number of days following the premium payment due date.
For example, Becky has an insurance policy, and she must pay the premium on the 5th of every month. She once forgot to pay the premium, received a 15-day grace period from the insurance company to complete the payment.
The maturity age of the life assured is the age at which the policy expires. It is another way of expressing the duration of the plan than policy tenure.
Maturity /Survival Benefit
A maturity benefit is a lump-sum payment made by the insurance provider when the policy has reached its expiration date. It means that if your insurance policy has a 15-year term, you, the insured, on survival, will receive a pay-out at the end of those 15 years.
A nominee is the person (legal heir) named by the policyholder to whom the insurance company would pay the money assured and additional benefits if something unfortunate happens to the insured. The nominee could be a child, spouse, parents, brother, or related to the insured.
Kevin, for example, had a life insurance policy with his wife as the beneficiary. Kevin, unfortunately, dies in a vehicle accident. On Kevin’s demise, his wife (nominee) will receive all the amount.
Owner of the policy
A policyholder is the individual who purchases a life insurance policy and pays the premium. The policyholder is the owner of the policy. The life assured is the policyholder.
If a policyholder cannot pay the premium after a specified period, the insurance company may offer him the option of converting his policy to a lower paid-up policy.
The premium is the monthly amount you pay to keep your insurance plan active and receive benefits. You can pay the premium in several methods, including in one lump sum, over a period, or at a frequency, for example, monthly, half-yearly, or annually.
The term “policy tenure” refers to the duration of insurance coverage. The policy tenure might range from one year to 100 years or whole life, depending on the type of insurance plan and its terms and conditions.
Premium payment term/mode/ frequency
You can pay your insurance premium whenever it is convenient for you. In a Regular Premium Payment, you pay a premium at a frequency, for example, monthly bi-yearly or annually. For Limited Premium Payment, you pay the premium for a specific period, such as 10, 15, or 20 years, and so on. For Single Premium Payment, you pay a premium in a lump sum for the entire plan.
The insurance company offers a revival period for the policy coverage if the policy lapse. The insurance will lapse if the policyholder does not pay the premium during the grace period. If the policyholder still wants to keep their coverage, the insurance company may reinstate it.
The sum assured is the amount the insurer agrees to pay in the event of a demise of the insured person or the occurrence of any other covered event. For example, suppose you purchased a policy that promises to pay $100,000 to your nominee in the event of a disaster. The sum assured is the amount promised.
If the policyholder discontinues the insurance plan before the maturity date, he gets a Surrender Value from the insurance company.
Eric purchased a policy with a $200,000 maturity value, but he needs money in the meantime and surrenders the policy before it matures. He only gets $100,000 from the corporation, which is the surrender value.
Underwriters in the insurance industry examine and analyze the risks associated with insuring persons and assets. Insurance underwriters set rates for insurable risks that are accepted.
Every sector has its vocabulary, and insurance is no exception. We only hope you found the preceding terminologies to be sufficient.