One thing that puts people off life insurance is the complexity of the product. Why can’t they speak in plain English?

The regular Aussie is going to encounter the following terms often when looking at a policy. Whether you’re applying for a policy directly or getting help from an advisor, it pays to understand these terms. We’ll do our best to make them as clear as possible in the glossary below.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Accidental death benefit (aka accidental death cover)

A form of life insurance that only pays out if the insured person dies as a result of an accident.

Beneficiary

A beneficiary is the recipient of your insurance payout, in the event of your death. This could be,

  • a spouse or your children, known as dependents,
  • the trustee of your estate, usually theexecutor of your will, or
  • anyone named on your policy, known as anon-dependent.

You are often able to also nominate more than one beneficiary – usually your partner and children. You should update your listed beneficiaries every time your situation changes (e.g. when you have children).

Benefit period

The benefit period is the length of time you get to enjoy your benefits, in the event of a claim. Say, for example, you need to claim on your income protection, and you benefit period is 2 years. If your claim is approved, you will then receive income from your insurer for 2 years.

Claim

A claim is the process of your beneficiaries requesting for the proceeds to your benefit, following your death. A claim can also be made by you or your representative (such as a power of attorney) if you suffer a medical trauma, disablement, or terminal illness.

If successful, a lump sum or monthly amount will be released to the beneficiary.

Duty of disclosure

When an insurer assesses you, they’re trying to determine how big a risk you are to insure. Insurers determine this based on the information you provide – generally relating to your health and lifestyle.

The following are considered when determining how risky you are:

  • pre-existing medical conditions,
  • whether you smoke (or how long since you’ve stopped),
  • dangerous sports or activities you partake in (and frequency of those), and
  • your occupation.

Your obligation to let your insurer know the above information is known as your ‘duty of disclosure’. If you don’t let them know, you run the risk of your family being unable to claim on your policy in the future.

Death benefit

The amount paid to your beneficiary following your death.

Exclusion

Some health and lifestyle situations aren’t covered by your policy because they’re deemed too risky. You may struggle to find insurance that covers these situations, as they’re often excluded from coverage.

Expiry (or expiry date)

The time when your insurance policy expires, as set out in the policy’s schedule. After this period, the policy can no longer be claimed on.

Contact your insurer for more information closer to the anniversary date.

Lapse

If you don’t pay your premiums within a set period as outlined in your policy, it’ll lapse. Once it lapses, you are no longer covered, and will need to get a new insurance policy. The exact period that results in a lapse is outlined in your product disclosure statement (PDS).

Life insured

The life insured (or ‘the insured’) is the individual named on the insurance policy.

Non-disclosure

If you haven’t disclosed any/all relevant information as requested by your insurer during an application, your policy may be made void. If this happens, your claim will be denied.

Our advice? It is simply not worth paying a premium on a policy that your family won’t be able to claim on. Be honest, and disclose everything

Policy

This is the contract between you and the insurance company. In it, you agree to pay for insurance and the insurer will pay out for claims, as outlined in your policy schedule.

Policy date

The actual date at which an insurance policy for the life insured becomes active.

Policy anniversary

The anniversary date that a policy was issued. This generally becomes relevant at the time of renewal (e.g. one year after you first took out your insurance).

Your insurance policy will, in most cases, be automatically renewed.

Premium loading (or just ‘loading’)

Loading is an increase of premium, due to a higher likelihood of death, injury or disablement. One great way to reduce your premium loading is to address these risk factors in your life. Quit smoking, or stop doing any dangerous activities.

Sum insured

The sum insured is the amount you have insured yourself for. This amount depends on a range of factors such as health, lifestyle and occupation.

Term

The term of your life insurance is a defined period of time for which the your policy is valid for. Most life insurance policies continue to provide cover until this term ceases, provided the policy is renewed each year. When you reach age 99, it’ll stop permanently.

Your product’s term is outlined in the product disclosure statement.

Terminal illness

A terminal illness is a condition something you will likely die from within 12 months. When this diagnosis is confirmed by a medical professional, you can then make a claim on your life insurance policy. This will help you meet the payments of treatments, and aid in any other ongoing living costs.

Term life insurance

Term life insurance is ‘Life Insurance’. It’s a policy that provides cover for a defined term (see term) that pays a benefit upon death or diagnosis of terminal illness. The proceeds of your life insurance policy’s payout (i.e. the benefit) go to your beneficiary.

Trauma

Trauma is a severe medical event, (e.g. cancer, stroke or heart attack), that you can insure against. What you can get insured for differs from policy to policy, however.

Because of this, be sure to refer to the product disclosure statement (PDS) to establish what is covered in your situation.

Waiting period

A waiting period is a defined period of time that you’re required to wait for before a benefit can be paid out. You’ll need to sit through waiting periods when you sign up for income protection.

Now that you know the language that’s used, it’s time for you to learn the basics of life insurance.