What is Meant by Term Insurance?

Key Terms Associated with Term Insurance

To understand the meaning of term insurance, you need to be aware of these terminologies —

• Policyholder – This is another term for policy owner. A policyholder is an individual who purchases the term insurance and pays regular premiums. 
• Life Assured – They are the individuals whose life is covered through this term insurance plan. It is not necessary that they are policyholders. 
• Sum Assured – This is the amount that the nominee/beneficiary gets paid in case the life assured passes away during the policy tenure as a death benefit. Usually, this amount is up to 20 times your regular annual income. 
• Nominee – This individual who inherits the sum assured if the life assured passes away during the policy tenure. Also known as beneficiaries, they are usually a family member or a close relative. 
• Premium – This is the amount that the policyholder pays to keep the term insurance plan active. You can pay the premium monthly, annually, half-yearly, quarterly, or in a lump sum. 
• Policy Tenure – This is the period for which the policy remains active. The policy tenure varies from plan to plan. 
• Death Benefit – This is the total sum equivalent to the sum assured that the insurance provider pays to the beneficiary if the life assured passes away during the plan period. The benefit may include riders as well. 
• Riders – These are additional benefits that you can add to your base plan by paying an extra premium. The benefit gets over once the policy tenure ends. Common riders in UAE are accidental death benefits, critical illness, waiver of premium, and total and permanent disability benefits. 
• Free-look Period – A term insurance plan usually has a free-look period that begins from the moment you purchase a policy. For this certain time, you can terminate the plan in case it does not meet your requirements. This period can differ depending on different policy terms. 

How is Term Insurance Premium Determined?

To estimate the exact premium amount, the insurance company will consider the following —-

• Age 
• Income
• Lifestyle
•  Policy tenure

Here’s an example

Qaiz is a 26-year-old UAE resident who earns AED 60,000 annually. He plans to apply for a term insurance plan and visits Policybazaar.ae for the same. He entered his details into their automated calculator like policy tenure of 25 years, income of AED 60,000 p.a., and age of 26 years.

Since he is a non-smoker, he learned that he would need to pay a minimum premium. Moreover, the sum assured offered is estimated to be AED 1,200,000 for the policy tenure (20 times his annual income of AED 60,000).