Things You Should Know

First, some definitions. I know, try to contain your excitement. But learning about life insurance without these definitions will make things much more difficult than necessary.

Beneficiaries: Who will receive the benefit of your policy - who gets the money, essentially. Can be you, your estate, your spouse, your children or your super fund.

Benefit: The amount that you’re actually insured for, and what the insurance company pays out when you make a successful claim. ‘My policy has a benefit of $400,000, which will be paid when I die.’

Claim: When you believe that one of your policy’s trigger events has occurred and you apply to the insurance company. If they agree, the benefit on your policy will be paid to you or your beneficiaries.

Duty of Disclosure: The idea of insurance is entirely based upon this legal precedent - that you, as the life insured, must disclose any information that could be reasonably expected to influence an insurance company’s decision to offer you cover. If you don’t, the policy might be voided and you will receive no benefit payment.

Exclusion: Where an underwriter decides that a life insured has specific features that represent higher-than-standard risks, so they specifically exclude them from the policy. Generally a result of a life insureds medical history. ‘Because of the back injury I had a few years ago, my insurer has excluded my back from my policy.’

Life Insured: The person who is insured. Policies have three main parties - the policy owner, the life insured and the beneficiaries. (Oh, and the insurance company - they play their part too!) The policy owner and the life insured do not have to be the same person.

Loading: Where an underwriter decides that a life insured is a higher-than-standard risk, so they ask for a higher premium in return for giving them cover. Normally expressed as a percentage.‘Because of my medical history, my insurance policy had a 100% loading.’

Policy: The contract between the policy owner and the insurance company. Made up of the details in the Product’s Disclosure Statement (PDS), any amendments made to the individual policy and the information disclosed by the life insured.

Policy Owner: The party that actually owns the policy. They can dictate where the benefit is paid. So the policy is ‘theirs’, not the life insureds. It is possible for the policy owner and life insured to be different.

Premium: The cost of the insurance. Can be paid monthly, quarterly, semi-annually or annually. The policy owner is responsible for ensuring it is paid. If the premiums are stopped, the policy will lapse.

Premium, Level: Where the premium for an insurance policy is projected over the entire life of the policy and then averaged back over each year, so the cost does not increase due the life insureds age. CPI and company-wide increases will still apply.

Premium, Stepped: Means that the price of the insurance increases each year as the life insured gets older and the risk of them claiming goes up. This means that insurance is much cheaper the younger somebody is, but when they get older it gets (often extremely) more expensive. Useful for people looking for cheaper insurance now.

Terms of Approval: The terms of the underwriters final decision. Can fall into one of four camps - Approved, Approved with an Exclusion, Approved with a Loading, Declined.

Trigger Events: The ‘triggers’ that will mean a policy owner can claim on their policy. ‘Cancer is a trigger event on my insurance policy, so the insurance company paid out when I was diagnosed.’

Underwriter: The gatekeepers of life insurance. Underwriters use the information provided to decide whether or not they will give you cover. They need to take into account medical, financial and historical factors. To make a qualified decision they need as much information as possible.

Continue reading: What is Term Life Insurance