
Ever wondered what all the terms in your insurance policy actually mean? Failing to understand the insurance jargon, we may find ourselves inevitably spacing out whenever someone starts to talk about insurance. When we need to get coverage, we then become overly reliant on our advisers, hoping that they will provide us with advice to our best interests. To resolve this knowledge gap, avoid over reliance and ensure adequate coverage, we feel that it is best to instead educate consumers on insurance. In this article, we explain the 6 commonly used terms you must know to understand your policy.
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#1 Policy owner vs life insured
Policy owner refers to the one who owns and is paying for the policy whereas the life insured refers to the individual whose life the policy was purchased on. While the policy owner and life insured tends to be the same person in most cases, there are instances where it may differ. For example, if a father were to buy a life insurance policy for his 12 year old son, the father would be the policy owner while the son would be the life insured.
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#2 Death benefit vs surrender value
The death benefit refers to the amount you are entitled to in the event of your death. A surrender value however, refers to the value of your policy should you choose to give up your policy after a certain number of years. Some examples of policies with surrender values are whole life and endowment policies.
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#3 Sum assured
A sum assured refers to the amount you are protected for. For example, if you purchase a life insurance policy with a sum assured of $500,000, you would then receive a financial compensation of $500,000 in the event of a death or Total Permanent Disability (TPD).
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#4 Multiplier
A multiplier is an optional rider that is commonly used in whole life policies. This allows an individual to temporarily boost coverage during his/her working years when he/she has higher financial liabilities and would require more protection. Take for example Mr Tan, an age 35 male who purchases a whole life policy with a sum assured of $300,000. In order to get higher coverage levels, he adds-on a multiplier of 3 to boost his coverage to $900,000 up till the age of 65. At age 65, his multiplier expires and his coverage reverts back to $300,000. Doing so allows Mr Tan to leave a legacy while also ensuring that he has sufficient coverage.
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#5 Policy term
A policy term refers to the duration of which your policy will remain valid for. For example, a whole life policy has a policy term for life. A term insurance on the other hand, would have specified policy terms and can range from a minimum of 5 years up to a maximum age of 85.
(See "Term or Whole Life – Which Should You Choose?")
#6 Premiums
Simply put, premiums are the amount you have to pay for your policy. Premiums payments may either be on a regular recurring basis or a one-time payment (i.e. single premium). A premium payment term may also differ from your policy term. For example, whole life policies are meant to provide protection for the rest of your life with the policy term being for as long as you live. Payment however, does not have to be that long with individuals having the option of a one-off payment or a limited pay option. This means you would only have to pay for a fixed number of years such as 10 or 15 years, to enjoy coverage for the rest of your life.
(See "Can You Really Afford To Not Have Critical Illness Coverage?")
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Available Products on FSMOne Insurance |
Term Life, Whole Life, Critical Illness, Annuity, Health, Endowment from Etiqa Insurance, Manulife, NTUC Income and Tokio Marine Life Insurance *Please check with our advisory team if the product you want is available on FSMOne Insurance |
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