Must Know Concept And Terms Part 1
Who are the insurance intermediaries?
Intermediaries mean distributors or agents. Traditionally life insurance has been sold by agents which are of 2 types - Individual Agent and Corporate Agents (a firm / company).
But now-a-days you can also buy insurance policies online from the insurer’s website and insurance aggregator websites which will give you the benefit of lower premiums as there is no agent in between. But to do so you must be knowledgeable enough to choose the right policy for you and have to handle all paperwork.
Key Life Insurance Terms
i. Premium
Premium simply means the amount which you need to pay to the insurance company to buy a policy. A single premium policy will require you to pay only one amount. Most of the policies give you the option to pay premium monthly/ quarterly or annually. You have to pay the premium at the said frequency for a fixed number of years depending on the policy terms and condition set at the beginning.
ii. Insurer and Insured
The person in whose name the insurance policy is taken is known as the policy holder or the insured.
The person whom you name as the nominee is the one who will get the insured amount if you die. The nominee is referred to as the beneficiary.
The insurer is the insurance company that offers you the policy.
iii. Sum Assured (SA ) and Maturity Value (MV)
The amount of life insurance cover for a life insurance policy which is guaranteed payable on the death of the policyholder during the policy term is called Sum Assured. This is also called Death Benefit. Death Benefit can be equal to or more than sum assured depending on the type of policy and terms and conditions therein.
The amount to be paid by insurance companies when the policy matures during the lifetime of the policyholder is known as maturity value or maturity benefit.
This will include the sum assured and the bonuses (if this option is chosen at the beginning).
So, maturity value can be equal to or more than sum assured depending on the type of policy and terms and conditions therein.
Example: An Endowment policy
If the policy holder passes away before the policy matures, the beneficiary gets Rs 2,00,000 along with the bonus too (if any).
If he is alive when the policy matures, he will get Rs 2,00,000 as well as any bonuses declared during the tenure of the policy.
Let's say the bonuses amounted to Rs 1,00,000. His maturity value would be Rs 3,00,000 (sum assured + bonuses).
iv. Bonus
Bonus means a benefit for the policyholder in addition to the sum assured. Bonus can be of two types – With profit bonus or a guaranteed bonus.
A with-profit bonus is linked to the profit of the company. If the company makes a profit, it declares a bonus accordingly. The bonus is added to your sum assured and is payable either on maturity of the policy or to your nominee if death occurs before that. This is offered purely at the discretion of the insurer and depends on the profits made in a particular year. It may or may not be declared every year
A guaranteed bonus is a part of the sum assured. It will be paid to you irrespective of the profits of the company.
