In our last article on life insurance we had explained the different kinds of life insurance and also described some of the relatively simpler terms which you as a buyer of life insurance should know. In this article we will continue our objective of educating you on terms used in life insurance products but this article will include those terms which a layman might not be aware off. Some of those terms are as follows:
Riders attached to the life insurance policies are additional benefits which you will get in addition to benefits of the base policy. Riders can be in the form of accidental death benefit, critical illness rider or waiver of premium.
- Accidental death benefit
Accidental death benefit is attached as a rider in life insurance policies which means that if the cause of death of the life assured is accident then the nominee of the life assured will get additional amount. For e.g. Mr. Shah has sum insured of Rs. 10 lakhs and this policy contains an accidental death benefit of Rs. 10 lakhs; now in case Mr. Shah dies in an accident then his nominee will receive Rs. 20 lakhs (Rs. 10 lakhs + Rs. 10 lakhs) from the insurance company. If Mr. Shah would have died for any reason other than accident then his nominee will receive just Rs. 10 lakhs only.
- Waiver of Premium
Waver of Premium means that in case of total disablement of the life assured in which he is no longer able to work, insurance company will waive off future premiums but his life insurance policy will continue as if premium is paid regularly and life assured will get all the benefits of the policy without paying the future premiums.
- Free Look Up Period
Free look up period is a grace period which a policyholder gets in case policy’s feature and benefits are not as per your requirement. In this period you have the option to cancel the policy within stipulated time which is usually 15 days from the date of receipt of the policy documents.
- Revisionary Bonus
Revisionary bonuses are the bonuses which are declared every year by the insurance company depending upon the performance of the insurance company. Revisionary bonuses increase the maturity amount receivable at the time of maturity of the policy.
- Terminal Bonus
Terminal Bonus as the name suggest is only paid once at the time of maturity of the policy. If a policyholder surrenders the policy before maturity then terminal bonus will not be paid.
- Premium Allocation Charge
Premium allocation charge is the charge that is directly deducted from the annual premium. After deduction of this charge rest of the amount is available for investment.
- Mortality Charge
Mortality Charge is the charge which is deducted for providing you insurance cover. This charge is dependent upon Age, health history of life assured and the amount of sum assured opted for.
- Administrative Charge
Administrative Charge is the charge which is deducted for administration functions of the policy. This amount is deducted monthly (sometimes yearly as well) and is usually a fixed amount.
- Fund management Charge
Fund management Charge is the charge deducted for managing the investment portfolio of the policy. This charge is usually a certain percentage of the funds managed by the portfolio manager.
As indicated earlier, life insurance is a part of holistic financial planning and you can check out our Human Life Value Calculator to see how much life insurance you actually require.