Insurance policy terms and premium paying terms is a very important terms in your insurance policy. today let us discuss the difference between insurance policy terms and premium paying terms policy.
Insurance policy terms and premium paying terms
Policy term
The policy term is the period of time for which the policyholder is covered under the term plan, also known as the policy tenure. This is the period through which the policy comes into force, provided the premium is duly paid. Each insurance company offers a variety of policy terms ranging from minimum to maximum, with the policyholder deciding for how long he/she wants term insurance coverage.
Premium paying term
Premium Paying Term is the period for which the policyholder has to pay premiums; In other words, it is the period for payment of premiums. A policyholder can decide when and how he wants to pay the premium. Policy payment terms can be of three types;
• Single Premium
He can pay the entire premium amount in one lump sum for the coverage till the end of the policy.
• Regular premium paying term
The premium paying term is equal to the policy term.
• Limited premium paying term
The premium paying term is less than the policy term. The premium is paid for a limited period of time, but the coverage continues till the policy term.
The policyholder can choose the regular frequency of monthly, quarterly, half-yearly or annual payment in regular and limited premium paying terms.
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Difference between insurance policy terms and premium paying terms
• Policy terms and premium payment terms are the most important factors to consider while buying a term insurance plan. Though, both represent time in term plan but are quite different.
• Policy term is the period for which the policy remains active, whereas premium paying term is the period till the premium is paid so that the policy remains active.
• The term of the policy is decided at the time of purchase of the policy, and the policy payout term depends on the insurer and the life insured. It can be equal to the policy term or can be shorter than the policy term.
Common Jargon Related to Term Insurance
• Restoration –
If a policy lapses due to non-payment of premium, the insurance company provides the option to renew the policy. This process of renewal of the policy is called reinstatement. Non-payment of premiums may result in a penalty, and an additional renewal fee applies.
• Renewal Premium –
It is the premium that the policyholder pays to the insurer to continue or renew the benefits of the policy after the completion of the policy term. If the policy terminates due to non-payment of premium, a renewal premium is charged to reinstate the policy.
• Revival period
This is the period after the grace period within which a lapsed policy can be reactivated. Hence the period offered by the insurance to revive an expired policy is called the revival period.
•surrender value
If a policyholder discontinues the policy before the policy term, the amount he gets from the insurer is the surrender value. Surrender fee is charged. The policyholder receives the savings component of the policy in which the accumulated amount is handed over as the surrender value. No surrender charges are levied if a policyholder pays premiums for a minimum period of 3 years without default.
• Benefit of Premium Waiver
Under special conditions, insurance companies waive future premium payments. This benefit is called premium waiver benefit and is provided in the event of death, accident or disability. The insurance company includes a premium waiver clause in your policy at an additional cost. Such profit is helpful in case of unexpected loss of income due to some unfortunate event.
After understanding the policy term and premium payment terms, it is also necessary to choose them wisely for your benefit. Firstly always choose the policy term at least till your retirement age. It should not be less than this. Secondly, if you are a salaried individual then prefer regular premium paying term instead of single premium paying term. Most insurers will tell you that a single premium is cheaper than a regular premium. But this is not the case. With regular premium, you get tax benefits every year. So know the facts and choose wisely.