Life Insurance Glossary
For anyone considering life insurance for the first time, and even some more seasoned Life Insurance veterans, not knowing the terminology used in the life insurance arena can make the whole process more daunting than it needs to be.
Once you spend a few minutes familiarising yourself with the terms particular to life insurance, you will be able to make an educated decision on your life insurance needs.
To that end, we’ve put together an index of terms to help you understand what you are looking at as you shop for and compare policies. Keep in mind that these terms will possibly vary a little, depending on the company. Almost all companies will have some clever or cute (at least they think so) name for each of their policies – names that don’t always have anything to do with the type of coverage offered – so you may have to ask a few questions to figure out what it is.
Policy Types
Income Protection: Like the name implies, income protection insurance will provide you with a percentage of your usual income if you become disabled for a long period of time. You choose the premium you pay by selecting the amount of time you have to wait for benefits once you are disabled and also the length of time you will be eligible to receive the benefits. The sooner you are eligible and the longer you are eligible, the more you can expect to pay in premiums.
Mortgage Protection: Similar to income protection, mortgage protection will cover your mortgage payments in case of a long-term disability.
Term Life Insurance: When most people speak of life insurance in Australia, this is what they are referring to. This insurance makes a lump sum payout to your estate when you die. Many policies will make the death benefit payout if you are diagnosed with a terminal illness in lieu of death.
Total and Permanent Disablement Insurance: Usually not a stand alone policy, although it can be, TPD works in conjunction with your life insurance policy and makes a lump sum payment in the event you become totally and permanently disabled.
Trauma Insurance: This cover kicks in when you suffer one of the pre-defined conditions in the policy, such as cancer, heart attack or stroke. The more expensive policies will cover more health conditions than the basic policy that is often bundled with life insurance policies.
Whole Life Insurance: Fairly uncommon today and no longer available in Australia, whole life combines a death payout with some sort of savings vehicle. The savings plans often under perform other investment options and can make the agent/company a small fortune in fees.
Other Definitions
Accidental Death: An optional payment in case of death caused by an accident.
Annual Premium: The total cost of the policy on a yearly basis. Most people pay on a monthly or quarterly basis and are more familiar with those amounts.
Automatic Indexation of Benefits Policies: with this clause will adjust the benefits according to the latest Consumer Price Index movements at renewal time.
Beneficiary: The person or persons who will receive your death payout.
Benefit Period: The length of time you will receive disability, income, illness or mortgage benefits once the waiting period is up.
Cover: Another name for insurance in Australia, can also be used in place of the word coverage.
Critical Illness Insurance: Another name for trauma insurance.
Death Cover: Another name for term life insurance.
Disablement Insurance: Another name for TPD insurance.
Index-Linked Premiums and Cover: The same as automatic indexation of benefits.
Offset Clauses: These clauses will allow your insurance provider to reduce the amount of payment due in cases other than death where you have some other source of monies coming in. For example, if you have a long-term injury and your employer provides sick pay, the insurance company may adjust your payout down accordingly.
Nominated Beneficiary: See Beneficiary.
Non-Cancellable Policy: This type of policy can’t be cancelled by the insurer due to changes in your situation.
Permanently Unable to Work Insurance: The same as TPD insurance.
Premium: What your life insurance cover will cost you. Can be stated as a monthly, quarterly or yearly basis.
Renewal: Your policy automatically renews every year on the date it originally became effective. Premium and benefit changes may take effect upon renewal.
Waiting Period: The amount of time you will have to wait upon becoming disabled to start receiving benefits.