It’s natural to want to find the best life insurance policy for your personal situation. But when looking in to the details of life cover, you might come across words or phrases you’re not 100% sure you understand.
Here we explain the meaning of some common insurance terms, to help you weigh up your life insurance options and make an informed decision.
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A policy is considered to be in 'arrears' if the customer has missed one or more regular payments.
Accidental Death Benefit
Is cover put in place to give you some financial protection in case of accidental death.
Beneficiary or Beneficiaries
The person or the people named by the policyholder as the recipients of the money paid out by the life insurance policy on their death.
Critical illness cover
Critical illness cover pays out a lump sum should you be diagnosed with a specified serious illness during the term of the policy.
The value of a life insurance policy and the cash payout if death or other specified event occurs while the policy is in force. Also referred to as cover, lump sum, cash sum, cash benefit, sum assured and payout.
A request made to the insurance provider for the cash benefit of a life insurance policy to be paid out.
A type of life insurance typically used to cover a significant debt such as a mortgage. As the debt goes down so does the policy’s cover amount. See also Level term insurance.
When an insurance provider refuses to accept a life insurance application because the person’s circumstances did not meet certain criteria.
Someone who is reliant on the insured person for support.
Existing medical condition (also pre-existing medical condition)
An illness or chronic health issue a person was suffering from before they applied for life insurance. Not disclosing medical issues when applying for life insurance can result in the policy being deemed invalid.
A person’s net worth at the time of their death. In other words, everything they owned such as property, possessions, savings and life insurance less what they owed, such as a mortgage or loan.
The cost of insurance (the premium) remains the same throughout the policy term so you always know how much you’re paying. See also Inflation.
Guaranteed insurability option
A feature that lets you increase the value of your life cover without having to provide any further medical evidence to the insurance provider.
The status of a life insurance policy when premiums are being paid when required and full cover is in place.
Over time, the cost of the goods and services we buy goes up and, as a result of this, how much we can buy with our money goes down. This is the effect of inflation. For example with level term life insurance, the cash payout is a set amount that never changes, so over time inflation will reduce how much it will buy.
The named person on whose death the policy will pay out.
The status of a policy when premiums have not been paid when required, so the policy is no longer in force. See also In force.
When an applicant does not tell the life insurance provider something that may affect their decision on whether to provide cover or what the cost of providing cover should be.
The contract between the person whose life is insured and the company providing the life insurance.
An important document that sets out the cover provided under the policy. It confirms the policyholder’s details, the type of cover, the term and any limits or exclusions that apply.
Policy end date
The day on which a life insurance term ends and cover stops. See also Term.
A higher rate that is applied to anyone the insurance provider classes as a smoker - typically someone who has used tobacco products within the previous 12 months.
The length of time a life insurance policy will cover the insured person for. Also referred to as the Policy Term.
Term life insurance
Life insurance that covers the insured person for a specified period of time. If the insured person dies during this time, the policy will pay out.
Terminal illness cover
Terminal illness cover pays out a lump sum should you be diagnosed with a terminal illness during the term of the policy.
A person who calculates the likelihood of a person making a claim based on the health and lifestyle criteria they provide when they apply.
Assessing a life insurance application to decide the cover amount and premium to be paid. See also Declined risk.
Waiver of premium
A feature that can be added to a life insurance policy at an additional cost. It pays your premiums when you are incapacitated due to illness or injury and, as a result, are unable to work.