Life Insurance Terms Every First Time Buyer Should Know
Insuring yourself with the best life insurance policy is a lot more than a contract between you and a company. It is a safety net and an assurance that even if something happens to you, your family will never be stranded!
Buying life insurance for the first time will require some form of assistance to understand the technical terms such as sum assured and claim settlement ratio, among others.
So if you want to choose the best life insurance policy for yourself, you must not only assess your financial goals but also educate yourself about the common terms and compare plans online before investing.
Knowing what these things mean will help you make an informed choice when you are shopping for term plans.
Let us break down the standard life insurance terms that every first-time buyer should know!
- Sum Assured
Sum assured is the most crucial consideration when buying the life insurance policy. This amount is the fixed payment that your family will receive in case of your demise. It is the total amount that you chose when you buy the best life insurance policy cover.
In exchange for the financial security for your loved ones, an insurance provider asks for premium. Insurance premium, therefore, is defined as the specified amount that is calculated by the insurance company, which you would have to pay periodically to maintain the coverage of insurance. The insurers will examine the type of coverage, your lifestyle choices, habits such as a smoker, medical conditions such as diabetes and other ailments, among other factors. After assessing all these factors, the insurance premium is calculated and then charged if you go ahead with the policy.
- Maturity period
The maturity period refers to the amount received by your family members when a policy mature. This means that if you took a plan for 15 years, then you will receive the lumpsum payout after 15 years, depending upon the type of insurance policy.
In most cases, life insurance policies only offer a death benefit, a lumpsum amount payable after your demise. But if you are looking to buy the best life insurance policy, make sure it offers maturity benefit, a total sum payable to you if you outlive the policy term.
- Rider Benefits
Life insurance riders are additional benefits that you can add to your primary policy to make it more expansive and contingent. These riders cover specific eventualities such as critical illness, accidental cover, loss of employment, to name a few. These riders provide financial cover over and above the basic sum assured in a life insurance policy. Even if the unexpected event happens, the life cover remains intact. This means that you can draw on a specific rider and still be eligible for a lumpsum benefit in case of your passing. As a policyholder, you can attach as many riders to your insurance cover as you like.
However, it is essential to note that attaching each cover will attract a certain fee, which will increase the premium. Therefore, it is necessary to assess your family needs and long-term financial goals before attaching more riders to your insurance policy.
- Claim Settlement Ratio
The only way to buy insurance plans is by taking the insurance provider’s claim settlement ratio into account. Claim Settlement Ratio depicts the insurers’ commitment to honouring the claims that come for clearance.
Simply put, the claim settlement ratio is the number of claims cleared by the company with regards to several claims filed in that year. Don’t feel disheartened if the number is not 100%. Sometimes claims get rejected due to improper documentation, misrepresentation of facts, and frauds that can affect the ratio. However, anything in the high 90s is a safe figure for investment.
- Critical Illness
Insurance plans with critical illness rider, you will have to pay a slightly extra premium to get assured financial assistance if you get diagnosed with one of the critical illnesses listed in the policy document. Critical illness cover helps you increase the benefit of your insurance cover. Unlike health insurance that either pays to your healthcare institute directly or reimburses the cost, critical illness cover gets kicked at the moment you are diagnosed with an illness. There is no restriction on how you use the sum assured that can be used to pay for medical tests, medicines, and even expenses that arise out of your condition.
Now that you are well aware of the basic terms making up a life insurance policy, you can now consider investing in the best life insurance policy armed with relevant information. There are many life insurance providers, such as Max Life, that help you compare and review insurance plans so that you can make a well-informed buying decision. Knowing the basics of life insurance policies is the key to purchasing the best one that provides maximum benefits at low-cost premiums.