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Know Your Insurance

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November 05, 2018

Despite the digital world observing a significant upsurge in the dissemination of information regarding insurance, the subject remains largely shrouded in mystery for many. Perhaps it is due to knowledge sources lacking in simplicity, or because essential data is far too dispersed to provide a bird's eye view of everything you need to know about insurance. Whatever the reason, it shouldn't keep you from investing in something that can change the lives of your loved ones for the better - financial protection.

Understanding these terms will give you the much-needed confidence to interact with insurance companies and make the right decision based on your unique requirements.

  • Claim Settlement Ratio:

    It is the proportion of death claims that have been settled by the insurer out of the total number of claims received. For example, if an insurance company receives 1,000 claims in a year and approves 800 of them, then the claim settlement ratio becomes 800 divided by 1,000 multiplied by 100 = 80%.

  • Endowment Plan:

    An insurance policy that, apart from providing life coverage, also pays a lump sum amount on maturity in case the policyholder survives the specified term. It pays the full sum assured to beneficiaries if the insured passes away during the policy term.

  • Free Look Period:

    It is the period during which a new life insurance policy holder can terminate his/her policy without incurring any cancellation penalties or surcharges. Depending on the insurer, this period can last from 10 to 15 days. If you decide to return the policy, you will be given a full refund of the paid premium.

  • Grace Period:

    A pre-determined amount of time the insurance company gives you after your premium is due, while still keeping your coverage active. Depending on the policy as well as insurer, this period can vary between 24 hours and 30 days.

  • Payout Period:

    The period of time in a policy during which the benefits or expected financial returns on an annuity or retirement account are paid. These payouts can be made at regular intervals such as on a monthly or quarterly basis.

  • Rider:

    A rider is an add-on provision to the base policy that offers additional coverage and benefits. These riders can be purchased by paying a surplus premium and are chosen depending on your needs. Some popular options include critical illness, accidental death, and permanent disability riders.

  • Solvency Ratio:

    The formula used to measure a company's ability to meet its long-term debts and other obligations. The lower the solvency ratio, the higher the chances of the company defaulting on its liabilities.

  • Sum Assured:

    The amount of money an insurance company guarantees to pay without adding any bonuses declared. This is the amount a policyholder is insured for and will be entitled to receive on maturity. In the event of the policyholder's passing during the policy term, the sum will go to the beneficiaries.

  • Surrender Benefit:

    This is the amount that the insurance company pays to a policyholder if he/she decides to terminate the plan before it reaches maturity. If cancellation of the policy is within the free look period, a surrender charge will be deducted.

  • Vanilla Term Plan:

    It is the simplest, most basic term plan that provides nothing but coverage. If the policyholder dies during the term of the policy, his/her nominees will receive the sum assured. However, there are no returns if he/she survives the term.

    Albeit not an exhaustive list, these terms will decode the seemingly puzzling world of insurance and help you pick the right plan. Armed with this knowledge, you are fully prepared to celebrate National Insurance Awareness Day by taking the time to think about the one thing that matters most - the safety of your loved ones.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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