Insurance Glossary. Every Term Explained in Plain English
Insurance documents are full of confusing words. This glossary explains every important term in simple, everyday language. Bookmark this page. you'll come back to it.
Basic Terms
- •Premium: The amount you pay for insurance. like an EMI for your family's safety. Can be yearly, half-yearly, quarterly, or monthly.
- •Sum Assured (SA): The guaranteed amount your family receives if you pass away. This is the main benefit you're buying.
- •Policy Term: How long the insurance lasts. A 20-year policy covers you for 20 years.
- •Premium Paying Term (PPT): How long you pay premiums. Can be same as policy term or shorter (limited pay).
- •Maturity: When the policy term ends and you're still alive. You may receive money back (endowment) or nothing (term).
- •Nominee: The person who receives the money when you die. Usually your spouse or children.
- •Policyholder: The person who owns the policy and pays premiums. Usually the same person whose life is insured.
- •Life Assured: The person whose life is covered. If they die, the nominee gets the money.
Bonus & Returns Terms
- •Simple Reversionary Bonus: Extra money LIC adds to your policy every year, expressed as ₹X per ₹1,000 of sum assured. Once declared, it can't be taken back.
- •Final Additional Bonus (FAB): One-time bonus added at maturity for policies held for long periods (usually 15+ years).
- •Loyalty Addition: Extra amount added at maturity for long-term policyholders. Similar to FAB.
- •Guaranteed Addition: Fixed additions declared at policy inception. you know exactly what you'll get. No market dependency.
- •Vested Bonus: Bonuses that have been declared and attached to your policy. These are yours to keep.
- •Fund Value: For ULIPs, the current value of your invested money in the chosen funds.
Policy Action Terms
- •Lapse: When you stop paying premiums and the grace period expires. The policy becomes inactive. no life cover.
- •Revival: Bringing a lapsed policy back to life by paying all unpaid premiums + interest.
- •Surrender: Closing the policy before maturity and taking whatever money is available (usually much less than what you paid).
- •Surrender Value: The amount you get if you surrender. Has two types: Guaranteed Surrender Value (minimum) and Special Surrender Value (usually higher).
- •Paid-Up: When you stop paying premiums but don't surrender. The policy continues with reduced benefits. Better than surrendering.
- •Loan Against Policy: Borrowing money from LIC using your policy as collateral. Policy stays active. Interest charged.
- •Assignment: Transferring policy ownership to someone else (e.g., bank for a loan).
- •Free-Look Period: 15 days after receiving the policy. you can return it for a full refund if not satisfied.
Claim & Benefit Terms
- •Death Benefit: Money paid to nominee when the policyholder dies. Usually sum assured + bonuses.
- •Maturity Benefit: Money paid to the policyholder when the policy term ends. Sum assured + bonuses for endowment plans.
- •Survival Benefit: Periodic payouts during the policy (money back plans). Paid every few years while you're alive.
- •Annuity: Regular pension payment (monthly/quarterly/yearly) for life. Used in pension plans.
- •Rider: Additional coverage you can add to a base policy. like critical illness rider or accidental death rider. Costs extra.
- •Grace Period: Extra time (30 days for yearly, 15 days for monthly) to pay premium after the due date without policy lapsing.
Tax & Regulatory Terms
- •Section 80C: Income tax section allowing deduction of up to ₹1.5 lakh/year for life insurance premiums (old regime only).
- •Section 10(10D): Tax exemption on maturity/death proceeds if annual premium ≤ 10% of sum assured.
- •IRDAI: Insurance Regulatory and Development Authority of India. the government body that regulates all insurance in India.
- •NAV: Net Asset Value. the per-unit price of ULIP funds. Like mutual fund NAV.
- •Underwriting: LIC's process of evaluating your risk (age, health, income) before approving your policy.
This article is for educational purposes. For official details, visit licindia.in.