If you are thinking of taking life insurance or health insurance, then buying a policy just by looking at the name of the company or the premium can be your biggest mistake. Before taking an insurance plan, it is very important to understand some very important words and terms, so that any kind of fraud can be avoided in the future. Let us know 8 such important insurance words and their meaning, which every policy buyer must understand. This information will help you to make the right decision and protect your interests.
Important for every buyer to know
There are many such words in the world of insurance that can confuse the common man. Understanding the correct meaning of these words will ensure a beneficial deal for you.
Protection vs Savings
Term Insurance: This is a “protection-only” policy. In this, more coverage is available at a low premium, but no money is returned on maturity. This is purely to provide financial security to your family.
Endowment Plan: An Endowment plan provides life insurance as well as a maturity benefit. In this, you or your nominee gets money after a certain period. But, for this, you have to pay a very high premium.
Sum Assured vs Total Coverage
Sum Assured: This is the fixed amount that the nominee of the policyholder gets after the policyholder’s death. This is the basic insurance amount decided at the time of buying the policy.
Total Coverage: Apart from the sum assured, it includes bonuses, riders, etc., due to which the total payment amount can be higher. This is the total money that you or your nominee can get by combining various benefits.
Waiting Period and Exclusions
Waiting Period: Not all illnesses are covered in a health insurance policy from day one. Many illnesses, such as diabetes, high blood pressure, etc., have a waiting period of 2 to 4 years. This means that the company will not bear the cost of the treatment of these illnesses during this period.
Exclusions: Some treatments, such as cosmetic surgery or self-inflicted injuries, are permanently excluded from insurance. Read the list of exclusions carefully before buying a policy.
Choose the right riders.
You can add add-ons like Critical Illness Cover, Accidental Death, and Premium Waiver Rider to your insurance policy. But every rider means additional premium cost. So, add these only if you need them, not just because they are available.
Claim Settlement Ratio (CSR)
Insurers often claim their Claim Settlement Ratio (CSR) to be very high (like 98%, 99%). But don’t just believe the CSR. See how many high-value claims they have settled and whether they settle claims on time. Also, look at the process and speed of claim settlement.
Don’t forget the Free-look Period.
After getting the policy, you get a Free-look Period (usually 15 days). In this period, you can read all the policy documents carefully. If you find anything wrong, you can cancel it and get your money back. This is an important right for your protection.
Premium Payment Term vs Policy Term
Policy Term: Policy term means how many years the policy will run, i.e., for how long your insurance coverage will be available.
Premium Payment Term: This is the period for which you have to pay the premium. It can be less than the policy term. It is very important to understand the difference between the two so that you can plan your finances properly.
Take advantage of No Claim Bonus (NCB)
In health insurance, if you do not make any claims in a year, your coverage increases, or the premium may decrease the next time. This is called No Claim Bonus (NCB). It is given to promote good health habits and benefit the policyholders. Do not forget to take full advantage of your NCB.