01/07/25
A term life insurance policy offers insurance for your life until a chosen period ends. In case the insured person dies with a valid policy, the agreed amount will be passed to the preselected nominee by the insurance company. In this aspect, understanding the ‘definition term life insurance' is crucial for anyone seeking financial protection for their family.
If the policyholder lives through the term of the policy, then the benefits will stop. This happens when the policyholder has not chosen to get the premium amount back upon termination. Term life insurance works well for those who want significant coverage and do not want to pay much for it. That's why it is one of the preferred types of term life insurance for adults who support others financially.
Key Terms in Term Life Insurance and What They Mean
It is necessary to know the terminology linked to term life insurance when choosing a policy for yourself. Here are some key terms are explained.
Sum Assured
The amount given on the policy is referred to as the coverage amount or the sum assured. This money is delivered to the nominee in case the policyholder passes away during the active policy term. This amount should be sufficient to cover the financial needs of the policyholder's dependent. This includes living expenses and future obligations.
Premium
It is referred to as the amount that the policyholder pays to the insurance company to keep the cover active. It can be paid monthly, quarterly, semi-annually or annually, depending on the agreement terms.
This amount is determined by multiple factors, which are:
Lower premiums are one of the main reasons term life insurance is so widely recommended.
Nominee
The individual chosen by the policyholder to get the sum assured on their demise is called the nominee. Most of the time, insurance companies choose close family members. They include the spouse, kids or parents, as the people to be claimed. To avoid any difficulties with settling claims, the nominee's information should be kept up to date.
Sometimes, people choose to change their selected nominee as their family changes. Usually, holders of insurance policies are able to do this quickly online or offline.
Rider
Riders are optional add-ons to a term life insurance policy that provide extra coverage or benefits. Some of the common riders include:
Adding riders enhances the policy's coverage, but it also increases the premium. However, strategically aligned riders with policy make the best term life insurance plan. Do note that each rider adds to the overall premium.
Grace Period
The additional time provided by the insurer to pay a missed premium is called the grace period. Most insurers allow this period to last between 15 and 30 days depends upon the product and frequency because it depends on how frequently premiums are paid. If you do not pay your premium during the set period, your coverage could end.
Lapsed Policy
A policy lapses when the premium is not paid within the grace period. In case of a lapsed policy, the insurer is not obligated to pay the sum assured amount after the policyholder's demise.
Even so, certain insurers permit policy reinstatement within a specific time, but it depends on the fulfilment of certain criteria and paying the overdue premiums.
FAQs
1. What is the definition term life insurance in simple terms?
Life insurance is a plan that gives financial help for a set length of time. If the policyholder is no longer living after the policy period, the insurer sends a pre-agreed amount of money to the nominee. When the term ends and the policyholder stays alive, they do not receive payment unless the return of premium was selected.
2. What happens if I stop paying my term insurance premium?
Failure to pay your insurance premium within the set deadline will lead to your policy ending. By letting the policy lapse, your cover for term life insurance will end, and your beneficiaries will not get the amount assured in case of your death.
A revival of a lapsed insurance policy is possible for some insurers, yet you must pay the pending premiums and the interest on those amounts.
3. Can I change my nominee later?
You are allowed to update your nominee whenever you want during the coverage period. You have to fill out the appropriate nomination change form that is given by your insurance company.
The method of insurance claims processing may vary since they can be handled in person or on the internet. You should keep your nominee details up to date if there are any new changes in your personal circumstances.
4. Are medical tests necessary for buying term insurance?
Yes. Medical tests are often required during the application for term insurance. It becomes a mandate for higher sum assured amounts or if you have certain health conditions. These tests allows insurers to asses your health riks and calculate the appropirate premium.
At the same time, some insurers also offer term policies without medical examination. Undergoing medical tests leads to more transparent pricing and fewer complications during claims. That's why it's a feature seen in most of the best term life insurance products.
5. What are riders, and should I take them?
Riders are optional benefits that you can add during the application of a term life insurance policy, can be availed by paying additional premium. It enhances the term life insurance coverage. How you address your needs and what you aim to accomplish financially will decide which riders you need.
Deciding on the right rider to cover allows you to customise your policy. As a result, the policy can be improved and may turn into the best term life insurance plan for what you require.