B

Backdating

A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the consumer at issue lower than it actually was, in order to get lower premium.

Beneficiary

The person designated to receive the death benefit when the insured dies.

Bond

It is like an IOU. By buying a bond you loan money to a company, a municipality, state or the Central Government.

Bonus

The amount paid as return in a policy. The bonus, expressed as a percentage of the sum assured, is generally declared every year. The amount is linked to the profits earned by the insurer. Depending on the time of withdrawal, there are two kinds of bonuses - reversionary and cash. A reversionary bonus can be encashed only on maturity of the policy; a cash bonus can be withdrawn when declared.

Budget

It is a tool used to monitor and control expenditures and purchases.

C

Cash value

The equity amount or 'saving' accumulation in a whole life policy.

Capital gains

Profit earned from the sale of stocks, mutual fund units and real estate. Long-term capital gains arise from assets owned for more than a year while short-term capital gains are made from assets owned for less than a year.

Claim

Notification to an insurance company that payment of an amount is due under the terms of the policy.

Compound interest

Interest computed on principal plus interest accrued during the previous periods of the investment.

Conditional receipt

Given to policy owners when they pay a premium at the time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt / proposal form / policy document.

Contestable clause

A provision in an insurance policy setting forth the conditions under which or the period of time during which the insurer may contest or void the policy.

Convertible term

A policy that may be changed to another form by contractual provision and without evidence of insurability. Most term policies are convertible into permanent insurance.

Corpus

The amount of money available with a scheme for investing. If already invested, the corpus is the current value of the scheme's portfolio.

Cost averaging

A strategy that involves investing a fixed amount of money in an asset class like equity, so that the average cost of acquiring the asset in the long-term is much lower than that in the short-term.

Cover

Another word for insurance; it also refers to the amount of insurance.

Critical illness rider

A rider that provides a policyholder financial protection in the event of a critical illness.

D

Death benefit

The amount payable to the nominee on death of the policyholder. The amount paid is the sum assured plus benefits applicable (if any) less outstanding loans.

Declining term cover

A type of pure life protection insurance policy where the premia remain the same while the life coverage keeps declining. They are typically used to cover the life of a person with a pending loan repayment, like home loan.

Deferred annuity

An annuity plan where the first annuity payment becomes payable after a chosen period that exceeds one year.

Disability / dismemberment benefit rider

A rider that provides for additional cover in the event of disability, or dismemberment, of the policy holder due to an accident.

Discretionary expenses

These are expenses like entertainment, dining out and non-compulsory travel that you can reduce at will.

Dividend yield

The percentage of dividend paid on a share to the value of the share.

Dividends

Payments made by companies and mutual funds to shareholders and unit-holders, respectively, from the income generated by it.

Double indemnity

Payment of twice the basic benefit in the event of loss resulting from specified causes or under specified circumstances.

Down payment

The money that a home buyer has to contribute, often at least 15 per cent of the value of the house, when he is taking a home loan.

E

Effective rate of interest

The true rate as against the nominal rate, which may be incorrect.

ELSS (equity-linked savings schemes)

Diversified equity funds that additionally offer a tax deduction under section 80C on investments up to rs.1 lakh.

Emergency fund

The money, in the form of liquid investments in bank savings accounts, two-in-one accounts and liquid funds, you need, to take care of emergencies like a job loss that your insurance policies wouldn't cover

EMI (equated monthly installment)

A borrower must make this payment each month towards repayment of interest and principal of a loan taken by him.

Endowment plans

An insurance plan that provides a policyholder risk cover and some return on investment. Usually suitable for the risk-averse.

Equity

The actual ownership interest in a specific asset or group of assets.

Estate

All assets of a person, both financial-like stocks, bonds, mutual funds and fixed deposits and physical-like a house and gold that can be passed on to his heirs.

Estate planning

A financial plan to ensure the transfer of all your assets-both financial, such as fixed deposits and stocks and physical, such as home, after your death to your heirs without any delay or loss.

Exclusions

Risks and circumstances not covered by a policy. No claim will be entertained in case of losses arising out of such situations.

F

Financial planning

It covers the essential elements of a person's financial affairs and is aimed at achieving a person's financial goals.

Fixed deposit

Funds placed on deposit in a bank, company or post office at a fixed rate of interest.

Fixed rate loan

Interest rate charged on a loan that remains fixed during the tenure of the loan.

Fixed-income investment

Any investment that provides a stated percentage of value, say 6 per cent, on the invested amount.

Floating rate loan

Interest rate charged on a loan benchmarked to a particular lending rate. The rate gets adjusted during the tenure of the loan as the benchmark interest rate changes.

G

Grace period

Period of time after the due date of a premium, during which the policy remains in force.

Graded premium policy

A type of whole life policy designed for people who want more life coverage than they can currently afford. They pay a lower premium rate that increases gradually over the first three to five years and then remains constant over the life of the policy.

Group insurance

An insurance policy taken out by employers to provide life cover to their employees. Usually the cheapest form of insurance.

Guaranteed additions

The amount paid as returns in assured-return insurance plans. Guaranteed additions are expressed as a percentage of the sum assured, with the amount payable being stated by the insurer at the outset.

H

Hospital cash benefit rider

A rider that provides cover for hospitalization.

I

Incontestability clause

A clause in the policy providing that if a policy has been in effect for a given length of time, the insurer shall not be able to contest the statements contained in the application.

Immediate annuity

An annuity that starts payments immediately after, or soon after, the first premium is paid.

Index fund

A scheme whose portfolio mirrors the progress of a particular index, both in terms of composition and individual stock weight ages. It's a passive investment option, as a fund's performance will mimic the index concerned, barring a minor tracking error.

Insurability

All conditions pertaining to individuals that affect their health, susceptibility to injury and life expectancy; an individual's risk profile.

Insured

The policyholder.

Insurer

The insurance company.

Investment risks

The risks that your investments face. These include the risk of interest rate fluctuations impacting your debt investments or the prices of equities going down.

Investments

Assets like fixed deposits, post office savings, bonds and stocks that are acquired for the purpose of earning a return.

L

Lapse

Termination of a policy upon the policy owner's failure to pay the premium within the grace period.

Level term cover rider

A rider that increases the life cover in non-term plans, up to a maximum of the sum assured on the base policy. The rider offers death benefit along, and serves the need for extra protection for a specified time period.

Liabilities

Monies owed, debt and other financial obligations of a person.

Life annuity

An annuity that makes regular income payments till the policyholder is alive. On the policyholder's death, all income payments cease and there are no beneficiary benefits.

Life insurance

An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured.

Limited pay policy

A type of whole life insurance designed to let the policy holder pay higher premiums over a specific period such as 10 or 20 years and then not pay any premium for the rest of his or her life.

Liquidity

The quality of assets that can be easily and quickly converted into cash without any, or significant, loss in value.

Lock-in period

The period of time for which investments made in an investment option cannot be withdrawn.

Loyalty additions

Additional benefits (other than guaranteed additions/bonus) paid to policyholders on maturity of certain investment-based insurance plans for staying on through its term. Loyalty additions are paid as a percentage of the sum assured, with the amount depending on the insurer's financial performance.

M

Marginal tax rate

The highest tax rate applicable to a person for paying income tax.

Market value

The monetary value an asset will fetch if sold in the market today.

Maturity date

The date on which a policy term or fixed-income investment like fixed deposit or bond comes to an end.

Money-back plans

A variant of endowment plans in which survival benefits are disbursed through the policy term, rather than in a lump sum at the end.

Mortality charge

The charge for the element of pure insurance protection in the life insurance policy.

Mortality cost

The first factor considered in life insurance premium rates. Insurers have an idea of the probability that any person will die at any particular age; this is the information shown in a mortality table.

Mortality rate

The number of deaths in a group of people, usually expressed as deaths per thousand.

Mortality table

A table showing the incidence of death at specified ages.

N

Net asset value (nav)

The simplest measure of how a scheme is performing, it tells how much each unit of it is worth at any point in time. A scheme's NAV is its net assets (the market value of the financial securities it owns minus whatever it owes) divided by the number of units it has issued.

Nominee

The person(s) nominated by the policyholder to receive the policy benefits in the event of his death.

Non medical insurance

A contract of life insurance underwritten on the basis of an insured's statement of his health with no medical examination required.

O

Occupational hazard

A condition in an occupation that increases the peril of accident, sickness, or death. It usually will mean higher premiums.

Offer and acceptance

The offer may be made by the applicants completing and signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the Insurer.

Original age

Your age when you bought the policy.

Ownership

All rights, benefits and privileges under life insurance policies are controlled by their owners. Policy owners may or may not be the insured. Ownership may be assigned or transferred by written request of current owner.

P

Participative plans

See 'with-profit' policy.

Pension plan

Investment products offered by insurance companies and mutual funds that required the investor to make defined contributions over regular periods, mostly every year. The contributions are invested according to a pre-decided investment plan. At retirement, the accumulation is paid out through regular pay-out options.

Periodic payment investments

Investment options that have payouts in fixed intervals. For example, money-back life insurance policies.

Permanent partial disability

Permanent loss of any body part, one eye, one limb or one finger or a toe, or injuries that render the insured in capable of earning an income from the date of the accident onwards from any work, occupation or profession. While the loss of the body part may be permanent , its effects on the insured's life are partial.

Permanent total disability

Permanent loss of use of any two limbs, or permanent and complete loss of sight in both eyes or any other injury that renders the insured incapable of earning an income. Cover this risk to secure your wealth.

Policy

The legal document issued by an insurance company to a policyholder that states the terms and conditions of an insurance contract.

Policy holder

The person who buys an insurance policy. Also referred to as the 'insured'.

Policy term

The period for which an insurance policy provides cover.

Post office schemes

Also known as Small Savings schemes, they are offered at post offices and carry the highest returns among fixed income instruments. Government backing makes these instruments like Public Provident Fund (PPF), National Savings Certificate (NSC), Kisan Vikas Patra (KVP) and Post Office Monthly Income Scheme (POMIS) risk-free

Premium

The amount paid by the insured to the insurer to buy cover.

Premium flexibility

The policyholder's right to vary the amount of premium paid each month towards a life policy.

Primary beneficiary

In life insurance, the beneficiary designated by the insured as the first to receive policy benefits.

Probate costs

The legal fees and other costs incurred in the probate process, which is the legal processing of your will. Assets that you leave to other people through your will cannot be disturbed until the will is probated.

Provisions

Statements contained in an insurance policy which explain the benefits, conditions and other features of the insurance contract.

R

Recurring deposit

This is offered both in post office and banks where you are required to contribute a fixed amount ever month. It is a great tool for making small and regular savings.

Reinstatement

Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying the required past due premiums.

Renewable term

Insurance that may be renewed for another term without evidence of insurability.

Rest

The frequency at which interest is calculated on the outstanding loan balance. The more regularly the interest is calculated on the outstanding loan amount, the lesser the interest costs and cheaper the loan. For example, monthly rests would make a loan with the same rate cheaper than a quarterly rest.

Revolving credit

A pre-established credit line, typically in a credit card, against which a person may borrow to make purchases.

Riders

Additional covers that can be added to a life policy, for a cost.

Risk

The chance of injury, damage or loss.

Risk selection

The method an underwriter uses to choose applicants that the insurance company will accept. The underwriter must determine whether risks are standard, substandard or preferred and set the premium rates accordingly.

S

Secondary beneficiary

An alternate beneficiary designated to receive payment usually in the event the original beneficiary predeceases the insured.

Small savings

See post office schemes.

Standard risk

Person who according to a company's underwriting standards is entitled to insurance protection without extra rating or special restrictions.

Substandard risk

Person who is considered an under-average or impaired insurance risk because of physical conditions, family or personal history of diseases, occupation, residence in unhealthy climate or dangerous habits.

Sum assured

The amount of cover taken under a life insurance policy, it is the minimum amount that will be paid on death of the policyholder during the policy term.

Surrender value

The amount payable by the insurer to the owner of an investment-based plan in case he opts to terminate the policy after three years (the mandatory lock-in period) but before its maturity date. The surrender value will be the premia paid till date minus surrender charges and any outstanding loans due.

Survival benefits

The amount payable to a policyholder under an investment-based plan if he survives the policy term. Typically, it is the sum assured plus returns (guaranteed additions / bonus) accrued.

T

Temporary total disability

An injury that results from an accident and renders a person immobile or affects his earning capacity temporarily. For instance, a fracture in the arm or leg that keeps you from work: you may be mobile but the injury may prevent you from working.

Term insurance

Protection during limited number of years expiring without value if the insured survives the stated period, which may be one or more years but usually is between five to twenty years, because such periods usually cover the needs for temporary protection.

Term plans

A plan that provides life cover for a specified period of time, but no return on the premia paid.

Terminal bonus

A one-time bonus paid on maturity of a with-profit plan.

Tertiary beneficiary

In life insurance, a beneficiary designated as third in line to receive the proceeds or benefits if the primary and secondary beneficiaries predeceases the insured.

Third-party owner

A policy owner who is not the prospective insured. The policy owner and the insured may be and often are the same person. Like, you apply for and are issued an insurance policy on your own life. If, however, your mother applies for and is issued a policy on your life, then she is the policy owner and you are the insured.

U

Underwriter

The company employee who decides whether the company should assume a particular risk or not and if yes, at what extra premium.

Uninsured risk

A person who is not acceptable for insurance due to excessive risk.

W

Waiver of premium rider

A rider that waives the premia payable on the base policy and other riders in certain circumstances mostly related to death, disability or injury. An important feature especially for investment products such as children's policies.

Wealth

The difference between the value of what you own (assets) and what you owe (liabilities).

Whole-life plans

Class of life insurance policies that provide cover through your lifetime.

Will

A document that designates the assets of a person-both financial and physical- to various family members and other heirs.

Without-profit policy

An insurance plan in which the policyholder does not get any share of the insurer's profits.

With-profit policy

An insurance plan in which the policyholder gets a share of the insurer's profits (in the form of guaranteed additions/bonus), along with the sum assured.