“Insurance is the subject matter of solicitation” is usually your first introduction to insurance. The speed with which it is said in a visual ad or how fine the print is in a newspaper/magazine ad stumps you further. Very understandably, you want to run away, fast. However, it is not necessarily as scary as it sounds 🙂
Let us first understand what insurance is.
Mr. U has recently got married, and one of his top priorities is to ensure that if anything were to happen to him, his wife should not have to suffer and face any financial difficulty in his absence. Given his current income, he feels Rs. 50 lakh is adequate for now, and finds a company ABC Insurance who is willing to insure his life for up to that amount.
In return for bearing the risk that something might happen to him, ABC Insurance wants him to pay them Rs. 10,000 per year, irrespective of whether anything actually happens. In addition to this, Mr. U also takes a critical illness rider for the same coverage.
So, Mr.U has just taken a life insurance policy from ABC Insurance. Sounds simple and straightforward, but many people often don’t take insurance because they find the terms quite difficult to understand.
Here are some essential terms to know if you’re getting an insurance policy:
1. Accident Benefit
Provides for payment of an additional benefit equal to the sum sum assured in installments on permanent total disability and waiver of subsequent premiums payable under the policy.
The recipient of insurance proceeds upon the death of the insured, as named in the policy.
A provision under which both the insurer and insured share the cost of the claim in a pre-decided ratio, e.g. 80:20, which means the person insured has to pay 20% of the claim amount. Usually applicable in health insurance policies, and especially for senior citizens.
The scope of protection provided under a contract of insurance, which is Rs. 50 lakhs in the above case.
The amount of out-of-pocket expenses borne by the insured, before the insurer pays any amount. This can be a fixed amount or a percentage of claim amount. Bigger the deductible, lower the premium.
Specific conditions or circumstances mentioned in the policy under which no coverage or benefits will be provided at all.
7. Family Floater Policy
A policy providing insurance to several family members in one contract, generally the principal breadwinner, spouse and children. Applicable to health insurance as well.
8. Group Insurance
Life / health insurance usually without medical examination, for a group of people under a master policy. It is typically issued to an employer for the benefit of employees, who get individual cards with their membership number. Valid only till duration of employment.
9. Lapsed Policy
A policy which has been terminated and is no longer in force due to non-payment of the premium due.
10. Maturity Date
The date upon which the face value of a life insurance policy, if not previously invoked due to the contingency covered (death), is paid to the policyholder.
A group of doctors, hospitals and other health care providers who provide services to customers of the insurance companies. Such hospitals provide treatment under a cashless benefit. If a hospital/service provider is not part of the insurer’s network, the person(s) availing of the treatment can claim the amount as a reimbursement after submission of bills.
12. Pre-existing condition
A medical condition of an individual that exists from before at the time of taking a policy. Depending on the nature of the condition, it is excluded from coverage for between 24-48 months, or even 12 months in same cases, if higher premium is paid.
A single or periodic payment that a policy holder makes to an insurer in exchange for the insurer’s obligation to pay benefits upon the occurrence of the contingency (e.g., death, hospitalisation, property loss, vehicle damage etc), which is Rs 10,000 per year in Mr.U’s case.
Riders are optional add-ons to the policy. For an additional premium you can buy a rider that gives you an extra benefit over and above what is covered in the policy. For eg, in Mr U’s case, if diagnosed with a critical illness that is covered by the policy, he will be paid the entire amount / have his future premiums waived off – whatever benefit is applicable under that rider – and the rider would be extinguished.
15. Waiting period
When an individual signs up for a new insurance policy, there is a fixed period of time after which any / certain benefits of the policy come into effect.
This is not an exhaustive list of terms; just ones that you are likely to come across more often. Given the fast paced lifestyle, stress, and rising costs of living nowadays, the more expensive the asset covered (and thereby the coverage), the more sense it makes to get insured.
You will find all kinds of insurance doing the rounds – from the commonly seen life, health, travel, vehicle, property etc to the more specific business / natural calamities to the absolutely bizarre ones like, believe it or not, insurance against abduction by aliens 😀