Insurance jargon unravelled
When you are reading your insurance documentation, wading through the jargon can be overwhelming. Here is a list of common insurance terminology with an everyday translation.
Accelerated benefitFor example, if you have life cover for $100,000 and this includes an accelerated benefit of $20,000 for terminal illness. Then if the $20,000 is paid out for a terminal illness claim (while the claimant is still alive), the remaining life cover reduces to $80,000
Annual RenewalEach year, typically on the policy anniversary date or the insured person’s birthday, the policy owner is notified of a premium increase.
BeneficiaryThis is who the insurance company pays the proceeds of a life insurance claim to. It is usually a person, but can also be a Trust or a company.
Claims assessmentThis refers to the process of considering the facts relating to a claim and deciding if the claim meets the criteria for payment.
CPI IndexingThis is where the insurance company automatically ads a CPI increase to your cover amount each year to keep pace with inflation.
ExclusionsThese are the events that are not covered under your policy and are usually listed in the policy to avoid any doubt.
Insured eventThis is the reason you’re taking out insurance. For example, if you’re taking out accident insurance then the insured event is ‘an accident’.
Insurance PolicyThis is the contract that binds the insurance company and the ‘insured person’.
Insurance ScheduleLife insurance companies generally print off ‘standard’ policy documents and then add a page called a ‘schedule’ which contains your specific information.
Insured PersonThis is the person who is covered under the policy. If it’s a life insurance policy, then it’s the insured person’s life that’s covered.
Level PremiumsSome insurance policies have premiums that do not increase; they remain the same each year.
Policy BenefitsThis refers to the different types of cover provided under your policy, such as ‘life cover, accident cover, disability cover, serious illness cover, etc. Waiver of premium and CPI indexing are also often described as ‘benefits’.
Policy LapsedIf you continue to default on your payments for more than a few months, your policy will be stopped permanently. If you want to re-start your policy, you will need to re-apply and go through all those questions again.
Policy OwnerThis is the person that is entitled to authorise changes to the policy and is generally responsible for premium payments.
Policy SuspendedIf you stop paying for a month or two your policy will be temporarily stopped, meaning you won’t be able to claim if you have a problem. If you start paying again, your policy will re-start.
PremiumThis is the ‘insurance’ word for the payments that you make for your life insurance .
Rating factorsThese are the factors (such as age, sex and smoking habits) that an insurer takes into account in order to offer you an insurance quote.
Re-insuranceInsurance companies often use even larger insurance companies to back up the policies they issue. When an insurer uses another insurer in this way, it’s called reinsurance.
Rider benefitsThis term is used to describe additional insurance cover of a different type added onto a policy; for example, a disability benefit added onto a life insurance policy.
Single PremiumSometimes insurance companies offer you the opportunity to pay your premiums as single instalment when the policy starts.
Stepped PremiumsMany life insurance policies have premiums that increase on a regular basis to match the risks associated with your advancing age.
Sum Insured or cover amountThis is the amount that will be paid out under the insurance policy.
Term LifeThis is a type of life insurance policy that a person takes out for a fixed ‘term’, such as 10 years, after which the policy ends automatically.
UnderwritingThis is the process that insurers follow to assess how much to charge you. For life insurance, the assessment is mostly about your health.
Find more relevant information managing your finances:
- How to prepare a family budget
- How to manage your credit card
- How to save on your home loan
- How to manage a joint bank account
- How to manage your loans and mortgage
This article was created for Kidspot - New Zealand's leading parenting website. Sources include Pinnacle Life.