As important as it is to purchase insurance, whether, for life or health, it is also critical to understand what it covers and stipulates. To fully understand it, however, we need to know the terms of insurance and phrases that are often used.

Here we will explain popular terms of insurance, such as health and term insurance, so that the next time you read an insurance policy, you will have a better grasp of it.

What is Insurance? 

Let’s begin with one of the basic terms of insurance, insurance itself.

Insurance is a legal contract between two people, the insurer and the insured. If any uncertain event happens, the insurance company promises to pay for the insured's losses. It might be the policyholder's death or property damage or destruction. It is referred to as a contingency since the event's occurrence is unclear. The policyholder pays a premium in exchange for the insurer's commitment.

Basic Terms of Insurance you Should Know About 

It's important to be familiar with the 15 terms of insurance listed below, all of which pertain to the policy.

● Policyholder: It is the individual in whose name the insurance policy is registered. Now, a policyholder is an individual whose name appears in the official documents. In some instances, a policyholder may not be the life insured. The life assured or insured is the person whose life is covered by the plan or policy.

● Assignment: It is the process of passing on an insurance policy from the original policyholder to a new person. Most of the time, this happens when the original policyholder has a lien on their name and had used the policy as collateral for a loan. Once the assignment has been completed, the benefits will be paid to the new policyholder if the original insured passes away.

● Nominee: A policyholder can pick or nominate an individual to receive the policy's benefits after his or her death. This person is called the nominee.

● Beneficiary: A beneficiary is a person who has a financial stake in the policyholder's life. They might be a legal successor, or an organization owed money by the policyholder. A beneficiary may be designated as a nominee under a life insurance policy.

● Death benefit: This is the amount the life insurance company pays to the nominee in case the insured passes away during the tenure of the policy

● Claim: It is nothing more than a notification from the policyholder/life assured/nominee to the insurance company, alerting them of situations in which the firm is expected to pay the nominee/beneficiary specific benefits, depending on the circumstances.

● Coverage: Each policy offers the policyholder/life guarantee a specified level of protection. This could include life insurance for the length of the policy, protection against certain diseases, protection against accidents, etc. The coverage might differ across plans.

● Exclusions: Not all situations must be covered by an insurance policy. There may be situations for which no insurance is provided. These situations are known as exclusions. Suicide is a common exclusion, which means that if the insured dies by suicide, they won't get any or less money.

● Premium: To receive the benefits of a plan, one must pay a set amount. It is known as the premium. The premium amount varies depending on the level of coverage selected, the policyholder's or insured's age, etc.

● Maturity/Death Benefit: The maturity benefit is the money given to the insured if they survive the policy period. Not all policies include a maturity benefit. When the policyholder dies during the policy's term, the death benefit is the money that is given to the nominee or beneficiary.

● Free-look period: Free-look period is the time during which you may decide to return the policy that you have purchased. Suppose if you are not satisfied with the terms and conditions of the policy you can opt out of the same.