Let’s be honest, most of us don’t know the first thing about life insurance or life insurance terms and definitions, and usually we don’t want to know (This can clearly be seen by the below video created by Columnitate in which people where asked about general financial terms commonly used). That said, we eventually realise the importance of having it. So at some stage, you are going to either be sitting with an agent, reading a policy or talking on the phone with someone who will talking in a language that you don’t know. For all you know, the person could be talking French and all you’ll understand is a word here and there from when you took that French class back in high school. For this exact reason, we have decided to help you with our Life Insurance Terms and Definitions article in which we've simplified things as much as possible in the hope that things will be easier for you to understand, and so that you'll finally get what insurance companies are talking about!
Life Insurance Terms and Definitions
Accelerated Benefits: When a life insurance plan allows you to claim your pay out early, generally because of a terminal illness diagnosis or some form of accident or disability.
Accidental Death Insurance: A form of life insurance that pays out when death is caused by an accident, for example a car accident. This is as opposed to natural death, which is death from natural causes or illness.
Accidental Dismemberment: a pay out in the event that you lose a limb (arm or leg) or digit (fingers or toes). This is usually a Percentage Pay out (see below).
Activities of Daily Living: These are things that you normally do every day, such as wash and dress yourself, eat, or use the toilet. Some disability insurance policies will pay a percentage of their pay out depending on how much your Activities of Daily Living have been affected by your accident or disability.
Annual Premium Increase: The amount by which your insurance premium goes up each year.
Annually Renewable Term: A form of life insurance that provides coverage for one year, but that allows the insured person to renew his or her policy each year without having to go through pre-insurance checks (such as a medical exam) again.
Beneficiary: The person who gets your insurance pay out in the event of your death.
Business Protection: An additional policy offered by many life insurance providers for business owners. Terms vary, but in general this kind of policy will cover the overhead costs (rent, power, staff) of your business for a certain period of time if you are sick or injured.
Childcare Protection: An additional policy offered by many life insurance providers for people who have dependent children. This generally pays childcare costs should you need to be hospitalised for a period of time and you are unable to take care of your children.
Claimant: The person who makes a claim for the insurance pay out. This may be you in the case of a disablement insurance policy, or your chosen beneficiary in the case of a life insurance policy.
Commencement Date: The date on which your life insurance policy takes effect/starts and gives you the coverage. In some cases this will be the date on which you purchase the policy unless you have a Waiting Period (see below).
Contingent Beneficiary: A beneficiary that can only claim an insurance pay out if certain conditions are met. For example, your spouse may be your beneficiary, with your children being alternative beneficiaries in the case that your spouse/partner is no longer alive to claim the policy.
Conversion (Privilege): The ability to change your life insurance policy to another policy before its expiration date. This must usually be done within the same insurance company, but you may get a different policy and not have to pay penalties for ending your original policy too early.
Coverage: Used as another word for ‘insurance’. The amount of coverage you have is the amount that you are insured for.
Death Benefit: Payment made to your beneficiary in the event of your death- this may be either a Natural Death benefit or an Accidental Death benefit.
Decreasing Term Insurance: A kind of insurance where you coverage becomes lower over time (usually by month or by year) but your premiums stay the same.
Dependent: Someone who depends on you financially. This could be an underage child, a non-working partner, or a disabled family member.
Disability Insurance: An insurance policy that pays out in the event that you're disabled in some way. This can be either Event Based Disability or Occupation Based Disability (see these terms below).
Dread Disease Insurance: Either a policy on its own, or part of a life insurance policy that pays out if you are diagnosed with a specific and serious disease (your policy will usually include the list of diseases – let’s hope we never need this!). The list of diseases varies by company, but usually includes cancer and heart related issues.
Funeral Insurance: A policy or part of your life insurance policy that pays out money that your beneficiaries can use to pay for funeral costs, such as services, coffins or memorials.
Increasing Term Insurance: A policy where the amount of your coverage goes up over time (usually by month or by year) but your monthly premiums stay the same.
Level Term Insurance: A life insurance policy where neither the amount of coverage nor the monthly premium changes over time.
Lump Sum Payment: This is when the pay out from a life insurance policy is made in one payment, as opposed to being paid in instalments (smaller payments over set periods) over time.
Mortgage Protection: A clause that's included in some life insurance or disability insurance policies that will cover the cost of your mortgage for a certain amount of time in the case of an accident or illness that means you can't work.
Natural Death: Death from natural causes, such as old age or sickness. This is as opposed to Accidental Death (see above).
Needless Exposure to Danger: When a person puts their life at risk for no necessary reason. In some cases your life insurance or disability insurance will become invalid and you won't get any money if the company thinks your accident was due to needless exposure to danger.
Occupation Based Disability: A disability that stops you from performing your profession or a similar profession that you are also qualified for. This is a form of disability insurance that will only pay out if you are unable to work.
Other Insured (Rider): When a policy allows you to add other people to it. For example, many life insurance policies allow you to also insure your wife and/or children on the same policy, meaning you get lower premiums overall.
Pay Out: The amount of money the insurance company pays you or your beneficiary when you meet the conditions of that policy. For example a life insurance pay out is the amount of money your beneficiary gets in the event of your death.
Percentage Pay Out: Common in disability insurance policies, this is when the insurance company pays out a percentage of the total coverage depending on your situation. For example you may get only 5% of the coverage amount if you lose a finger in an accident, whilst losing an arm could mean a 40% pay out.
Policy Lapse: When your insurance policy becomes invalid, usually because the monthly premiums have not been paid or other conditions set by the company have not been met.
Premium: The amount of money you pay each month for your insurance policy.
Primary Beneficiary: In the case that you have more than one beneficiary of your insurance policy, the primary beneficiary is the one who is allowed to claim their pay out first.
Repatriation: When a dead body needs to be moved to another place. This may be a return from abroad for burial, or it may be within the country because the beneficiaries wish the insured to be buried in a place other than where he or she died.
Smoker Ratings: A rating given to someone who is being insured determined by whether they smoke or use tobacco products, or how recently they have stopped smoking. This is used by some insurance companies to give lower monthly premiums to those who have never smoked and are therefore lower risk.
Suicide Clause: A clause in some life insurance policies that means that the company will not pay out if death is caused by suicide.
Terminal Illness Cover: A policy or part of a policy that gives pay out when a diagnosis of a terminal disease is given. Usually this type of policy pays out when doctors agree that there is only a certain amount of months left for the patient. The money may then be used to pay for medical costs or to support family members who are looking after the patient.
Term Life Insurance: A life insurance policy that is only for a set amount of time. For example, this kind of policy may expire when you turn 65.
Underwriter: A person who decides how much of a risk you are to the insurance company, and whether or not your request for a life insurance policy should be accepted. How much your monthly premiums are will probably also be decided by an underwriter.
Life Insurance Terms and Definitions Cr:cloudbackupsource.com
Uninsurable Risk: Something or someone that is considered such a large risk that an insurance company won't cover it or them. For example, if you have a very high risk profession or hobby (like bungee jumping), some insurance companies may find you to be an uninsurable risk.
Waiting Period: The amount of time you must wait until your insurance policy takes effect and you can make a claim. Some policies have no waiting periods, whilst others have different waiting periods for different events. If a life insurance policy covers suicide, for example, it's common to have a longer waiting period before suicide coverage kicks in than the waiting period for accidental death coverage.
Waiver of Premium: A condition in some disability insurance policies that says the company will not require you to pay your insurance premiums for a set amount of time after you have been disabled.
Whole Life Insurance: As opposed to Term Life Insurance, whole life insurance will cover you for your entire life and never expire.
We hope that the above post helps you better understand the various life insurance terms and definitions. If you feel that we forgot anything, comment here below and we will add it.
* Disclaimer: We do not represent any of the companies, products and/or services reviewed, published or advertised on this website. Nor are we financial, health or insurance professionals or services provider. If you request a quote or purchase a product/service, it will not necessarily be given by the company reviewed on any specific page. Any decisions you make based on the information presented is at your own discretion and we advise that before doing so, you consult with the relevant professional.
Main subject: Life Insurance Terms and Definitions
