A policy document is an evidence of insurance contract between the Insurance company and the policy holder. Generally, it includes the proposal form submitted by the policy holder, the policy schedule, the first premium receipt, and any supplementary documents provided by the company.

There are various technical terms used in the policy document and most of the policy holders do not understand this terminology. A policy holder must be aware about these technical terms so as to avoid any unscrupulous activity on part of policy seller.

Here we are with 10 common jargons which a policy holder must know in order to understand his/her policy document.

Policy Holder & Life Assured

A policy holder is a person who purchased the insurance policy. He is the one responsible for paying the premiums for the policy.

A policy holder may or may not be the life assured. Yes, in most cases the policy holder is the life assured but in some cases it is not. Let us assume that you buy a life insurance policy for your kid/wife. Your kid studies in school and your wife is home maker. Both of them do not have any source of income but you want to cover the risk of life or health for your family, so you buy a life insurance policy for them. In this case your kid/wife will be the ‘life assured’ and you will be the policy holder.

Premium

An insurance policy is a kind of financial protection against various kinds of risks in life. But you will get this benefit only if you pay the premium to the company. Premium is the amount that you need to pay to keep your policy alive. The amount of premium may vary according to your policy or age etc.

In some policies you can opt for one-time premium for your policy. In this case you don’t have to pay for the entire term of the policy. You pay a lumpsum right at the beginning of your policy.

While in the other policies you may opt for monthly, quarterly, bi-annual or annual payments. This payment could go till the end of the policy or for a limited period of time, say five years, depending upon the policy type you chose.

The regular premium paid is, of course, much smaller than the one-time lumpsum paid by the policy holder.

Policy Tenure

Policy tenure is also called policy term or duration of the policy. It is simply the time period for which you will be able to enjoy the benefits from your policy. Most policies provide these benefits till maturity of the policy but the tenure may vary from policy to policy. For example, a policy ‘A’ may provide you a life cover for five years while another one ‘B’ may be giving you a life cover for ten years with a different set of terms and conditions.

Free-Look Period

Say you are reading your policy document and you are not satisfied with the terms and conditions of the policy; or you just found that the information provided in the policy document does not matches with the information provided by the policy advisor; or you observed that the hidden charges were so much higher. For any of these reasons you want to quit your policy.

You will get a time period between 15-30 days to return your policy and the number of days would be specifically mentioned in your policy document. The company will deduct some fixed charges (mentioned in the document) and the remaining amount will be credited to you.

Grace Period

Timely payment of the renewal premium is necessary for the continuation of the policy. The insurance companies provide 15-30 days beyond the renewal date (on which regular premium has to be paid) as a grace period to pay the premium. In case you do not pay the premium till the end of grace period, your policy will be lapsed or end.

Revival Period

If your policy has lapsed but you want to continue your policy then in that case you will get some additional time, as specified by the company, to re-activate your policy. This additional time period is known as the revival period.

Maturity

You will be provided with a date of maturity on your policy document. It is the date on which your insurance policy will come to an end. You will not receive the benefits such as life cover beyond the date of maturity.

The amount that you receive at the time of maturity is called the maturity benefit.

Riders

There are some additional ‘covers’ which a customer can add on to his/her existing insurance policy, as per your policy terms, by paying a little extra money. These additional covers are known as riders.

For example, the policy holder may add ‘critical illness’ cover to his health insurance policy. In this case the insured person will get treatment expenditure incurred on diseases such as cancer, stroke, kidney failure or cardiovascular diseases as per his chosen plan.

Similarly, if there is provision in the policy, other riders such as an accidental death benefit rider, accidental permanent disability rider, premium waiver rider etc. can be added to the insurance policy.

Sum Assured

It is the amount that the ‘Nominee’ (the person appointed and mentioned in the proposal form filled by the policy holder while purchasing the policy) will get in case of the unfortunate death of the policy holder. In most cases the nominee is a family member or another person closer to the policy holder. So, sum assured is basically the amount of money promised by the insurance company to the policy holder in case of his death.

This amount is the main highlight of a life insurance policy and is clearly mentioned in the policy document. The amount may vary according to the policy chosen. Generally, sum assured is directly proportional to the premium paid. More the premium paid by the policy holder, the more will be the sum assured. A sum assurance of 10-15 times your annual income is considered better.

It needs to be mentioned here that sum assured in a life insurance policy document is not the amount that you receive at the time of maturity. It is the amount that is paid at the time of death.

Surrender Value

Here the term surrender is associated with the policy holder. If the policy holder wants to quit the insurance policy before maturity then the amount that he will receive is known as surrender value. You won’t get this amount in the policy document as it is the accumulated value which varies from time to time. But you must confirm that your plan provides for a surrender value. Because some insurance plans will not give you any money in case you surrender before maturity.

That’s it for today. If you find this information useful you can always share it with your friends over social media.

Thanks for reading.