Basic Life Insurance Terms Everyone Should Know

by SMCIB on Tuesday, 09 January 2024

Basic Life Insurance Terms Everyone Should Know

A life insurance plan is one of the best ways to safeguard the financial futures of your loved ones. It is an essential part of your financial planning and should be a decision that you take with the utmost care and consideration.

While you step into the vast landscape of life insurance, you will come across many technical terms in the policy documents, brochures, and T&Cs. These tricky words may hamper your journey and throw you into confusion. It is important to understand what these terms mean before you finalise your purchase so you can make a well-informed decision.

We discuss 15 basic life insurance terms you should know about - in the article below.

Life Insurance Terms You Must Know

1. Policyholder The policyholder is an individual who purchases and owns an insurance policy. They are required to pay the premiums to keep the policy active.
2. Life Assured

The term life assured refers to the individual whose life is covered under the life insurance policy. In case of the death of the life assured, the insurance company pays the claim to the nominee.

Note: The life assured may or may not be the same as the policyholder. For example, if Mr A buys a policy for his spouse, the spouse is the life assured and Mr A is the policyholder.

3. Nominee

A nominee is the person who receives financial benefits from the insurance company in case of the death of the life assured. The nominee can be the life assured’s spouse, child, parent, etc.

For example, Vinod purchased a term life insurance plan and chose his spouse as his nominee. In case of Vinod’s unfortunate death during the policy period, his spouse will receive the death benefit.

4. Participating Life Insurance Policy

Under a participating life insurance policy, you receive a portion of the insurance company's profits in the form of bonuses and dividends.

Note: Bonuses are not guaranteed. They are dependent on the market performance of the insurance company.

5. Non-Participating Life Insurance Policy

Under a non-participating life insurance policy, you receive no dividends or bonuses. Only the death, maturity and other benefits (depending on the plan you choose) are payable.

6. Riders

Riders are the add-on benefits that you can add to your existing policy to enhance its coverage - by paying an additional premium.

For example, you can opt for a Waiver of Premium Rider due to Critical Illness to keep your life cover active even if you can’t pay the premiums due to circumstances such as a diagnosis of a critical illness listed in the policy document.

7. Premium

The premium is an amount of money that the policyholder regularly pays to keep their life insurance coverage active.

The premium is calculated on the basis of certain factors like the policy duration, cover amount, features/benefits you choose, etc.

For example, Kiara purchases a term life insurance plan with a cover amount of Rs 50 Lakhs for a policy period of 20 years. She chooses to pay the premiums throughout the policy period on a regular basis. As calculated by her age, policy type, cover amount, etc. she will need to pay a premium of approximately Rs 15,000 over the next 20 years.

8. Death Benefit

A life insurance policy pays a death benefit to the nominee if the life assured dies when the policy is active. They can use this money for their financial goals, paying off loans, everyday expenses, etc.

For example, Sonia purchased a term life insurance policy with a cover amount of Rs 50 Lakhs and chose her daughter as the nominee. In case of Sonia’s unfortunate death, while the policy is in force, her daughter will be paid the cover amount as a death benefit to fulfil her financial needs.

Note: The death benefit depends on the life insurance policy you choose and can include the sum assured, bonuses, rider benefits, etc.

9. Maturity Benefit

The maturity benefit is paid to the life assured if they survive the policy duration and the payable amount depends on the insurer and the policy you own.

The maturity benefit may be the sum assured, a % of the sum assured, or a % of the premiums, etc.

For example, Soham purchased an endowment plan with a cover amount of Rs 45 Lakhs for a period of 20 years. He will receive the cover amount from the insurer as a maturity benefit at the end of 20 years, i.e., if he outlives this period.

Note: No maturity benefit is payable in the case of term life plans.

10. Survival Benefit

Certain life insurance plans (for example, Guaranteed Income Plans, Whole Life Plans, etc.) also pay survival benefits to the life assured periodically, based on the policy’s terms and conditions.

The survival benefit can be a % of the sum assured or a % of the annual premiums.

For example, Raj purchased a whole life plan with a cover amount of Rs 1 crore. He needs to pay premiums for the next 25 years and will receive a survival benefit once the premium payment term is over. The survival benefit will be paid over 5 years and is equal to 10% of the cover amount.

Survival benefit = 10% of 1 crore

= Rs 10 Lakhs.

So, Raj will receive Rs 10 Lakhs as the survival benefit in the 26th, 27th, 28th, 29th, and 30th policy years.

11. Appointee

An appointee is a person appointed by the policyholder to receive the policy benefits on behalf of your nominee in case the age of the nominee is less than 18 years on the date of claim payment.

12. Free-Look Period

A free-look period is the time given to you after policy purchase, during which you can review the policy that you purchased. It usually lasts for 15 days from the date of receipt of the policy document.

If you feel you are unsatisfied with the policy, you can return it to the insurer. You will receive a refund of the premiums you have paid.

Note: Certain charges, such as administration charges and stamp duty charges, may be deducted from your refund amount.

13. Grace Period

The grace period is the extra time that your insurer gives you to pay your overdue premiums in case you missed paying your premiums on time.

However, keep in mind that if the premiums are not paid within this time frame, your policy will lapse and you will no longer be eligible to receive its benefits.

14. Cash Value

A cash value is the money that builds up on your life insurance policy over time and earns interest as long as the policy is in force. You can borrow, withdraw, or use this money to cover your future premiums.

Note: Not all life insurance plans have this benefit. So, read the policy wording carefully before making a purchase.

15. Surrender Value

The surrender value is the sum of money that your insurer will pay you if you surrender, i.e., discontinue your life insurance policy before its maturity.

A life insurance policy usually acquires a surrender value if you’ve paid the premiums regularly for at least 2 years. This time frame can vary across products.


When it comes to investing in life insurance, the more clarity you have the better. Life insurance is an important financial tool and carves the path to your and your family’s secure future. We hope the above-discussed terms gave you some clarity about the jargon used in life insurance and will help you make the right decision.

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