Glossary of life insurance terms

Beneficiary	When you take out a life insurance policy, you may be asked to name a ‘beneficiary’. This is the person (or people) you’d like to receive the lump sum that can be paid out by your insurance company if you die. Often people choose their partner, children or family.
Claim	An insurance ‘claim’ is the process of requesting payment from your insurance provider because the event that you’re insured for has happened. In the case of life insurance, the claim can be made by your partner or family in the event of your death.
Cover	Having ‘cover’ in place means an insurer has taken on the risk of something happening to you, and that they can pay out if it does. Your cover ‘amount’, is how much you’re covered for – i.e. how much your insurer would pay out if the event happens. For life insurance, the event is your death or diagnosis of a terminal illness and usually given 12 months or less to live, and the cover amount can be paid out as a lump sum.
Death benefit	All life insurance policies come with a ‘death benefit’ – which is a technical way of saying that the policy can pay out if you die. Policies can sometimes have other benefits too, like ‘terminal illness benefit’ – in which case it can pay out early if you were diagnosed with a terminal illness.
Death in service	Death in service is a benefit provided by some employers. A lump sum is usually paid out if you have it, your named ‘beneficiary’ – i.e. the person (or people) you’ve nominated to receive the money – will be paid a lump sum if you die while you’re an employee of the company. The lump sum is usually a multiple of your annual salary – e.g. 2x or 4x. Death in service is similar to life insurance in the sense that it can be there to help support your loved ones financially if you die. But it’s different in that it’s provided by your employer – as opposed to life insurance, which you take out yourself. If you stop working for the company that provides you with death in service, usually you’ll no longer be covered by the benefit.
Decreasing term life insurance	Term life insurance is an insurance policy that can pay out a lump sum if you die within an agreed period of time – your policy ‘term’. If you buy decreasing term life insurance, the amount of money paid out as a lump sum decreases over time. So if you die nearer the beginning of your policy term, the lump sum will be bigger than if you die nearer the end. People typically buy decreasing term cover if they know their needs will also decrease over time – i.e. because they’re gradually paying off a mortgage.
Exclusions	Insurance policies can come with ‘exclusions’ – which means circumstances in which they won’t pay out. A ‘suicide exclusion’ is common in life insurance policies, stipulating that the policy won’t pay out if you die by suicide within 12 months of taking out the policy. Some exclusions always come with the policy and apply to anyone who takes it out; others may be added by the insurer based on your particular circumstances at the time of taking out the policy (e.g. your health history, job or lifestyle).
Existing medical conditions	An existing (or pre-existing) medical condition is one that you already have at the time of taking out an insurance policy. This can be important in the case of life insurance because having an existing medical condition could affect how much of a risk you are to insure. An insurer may charge a higher premium or refuse your application based on you having an existing medical condition, depending what it is and how severe it is.
Increasing term life insurance	Term life insurance is an insurance policy that is designed to pay out a lump sum if you die within an agreed period of time – your policy ‘term’. If you buy increasing term life insurance, the amount of money paid out as a lump sum increases over time. So if you die nearer the beginning of your policy term, the lump sum will be smaller than if you die nearer the end. People typically buy increasing term cover if they know their financial liabilities will go up over time, or simply to factor in inflation.
Insured	The ‘insured’ is a technical way of referring to the person who is insured by an insurance policy. Sometimes called the ‘policyholder’. It’s likely you’ll see this in your policy documents.
Income protection insurance	Income protection is an insurance policy that is designed to pay out a monthly amount if you can’t work for medical reasons. If you’re signed off work by a medical professional, you can claim on your income protection policy. You can’t claim if you’ve lost your income for any other reason – like redundancy.
Level term life insurance	Term life insurance is an insurance policy that is designed to pay out a lump sum if you die within an agreed period of time – your policy ‘term’. If you buy level term life insurance, the amount of money paid out as a lump sum will always stay the same. People typically buy level term cover if they know their financial liabilities will always stay the same – so the money needed in 5 years’ time, for example, is the same as what would be needed in 25 years’ time.
Life insurance	Life insurance is an insurance policy that is designed to pay out a tax-free lump sum if you die. It’s designed to help financially protect the dependents you leave behind. Different types of life insurance include: term life insurance, whole-of-life insurance, and over-50s life insurance.
Misrepresentation	Misrepresentation is often a common reason for a life insurance claim not being paid. It simply means not being honest during the application process. It’s very important to be honest about your health and lifestyle when you apply, otherwise you can risk invalidating your policy.
Payout	An insurance ‘payout’ is the money paid out by the insurer if a successful claim is made. You should receive your payout if the event that you’re insured for happens. In the case of life insurance, the lump sum is designed to pay out if you die, or diagnosed with a terminal illness, during your policy term.
Policyholder	The ‘policyholder’ is simply the person who holds the insurance policy. In other words, the person who is insured by the policy.
Premium	An insurance ‘premium’ is the monthly price you pay to be insured.
Quote	An insurance ‘quote’ is an estimate of how much it might cost you to be insured with a particular policy by a particular insurer. Specifically, it’s an estimate of what your monthly premiums can be. To make the quote as accurate as possible, it’s based on the information you provide about you, your health and lifestyle, as well as the insurer’s current rates. You’ll get a final price once your application goes through the underwriting process.
Serious Illness Cover	Serious Illness Cover is an insurance policy that is designed to pay out a lump sum if you are diagnosed with a specified serious illness.
Sum assured	‘Sum assured’ is the technical way of referring to the amount of cover you have in place through your life insurance policy. It’s also the amount of money that can be paid out by the insurer if you died.
Term	When you buy term life insurance, the policy ‘term’ is how long you’ll be insured for – e.g. 10, 20 or 30 years.
Term life insurance	Term life insurance is a life insurance policy that covers you for a set amount of time – known as the policy ‘term’. It is designed to pay out a lump sum if you die during your policy term. It won’t pay out if you die after that time as you’ll no longer be insured.
Terminal illness benefit	Polly life insurance policies come with ‘terminal illness benefit’ – which means the policy can pay out early if you’re diagnosed with a terminal illness. To qualify for this benefit, a doctor would need to state that you have 12 months or less to live.
Trust	A ‘trust’ is a legal arrangement for leaving assets to the person (or people) you choose.
Underwriting	Underwriting takes place when you obtain a quote or when you are referred to underwriting due to health and lifestyle responses. It’s the process of an insurance company assessing how much of a risk you are to insure – in other words: how likely it is that you’ll need to make a claim and that they’ll need to pay out. An underwriter is responsible for evaluating this risk and deciding whether or not to accept your application, under what terms, and how much it’ll cost.
Waiver of premium	When you buy a life insurance policy, you agree to pay a monthly premium for as long as you hold the policy. If your policy has waiver of premium, it means you’ll be exempt from paying your monthly premiums if you can’t work for certain medical reasons as designed by your insurer. Insurers usually place a maximum on how long you can use waiver of premium for – e.g. 3 or 6 months.

Start your free quote