Looking for your first life insurance policy? You may have come across a few words and phrases that you are unfamiliar with. This insurance jargon can be confusing, especially since different companies may have their own definitions for the same words. Even if you’ve had a policy for years, a quick refresher could be useful when renewal comes around.
To help clear up any confusion, we’ve put together this list of 10 common life insurance terms with the help of Dollar Insurance.
Underwriting – This is the process insurance companies use to determine whether to provide someone with insurance, and under what terms. Depending on the type of insurance you apply for, you may be asked detailed questions and there may be medical requirements (such as having a physical done by your GP) to help with these decisions.
Premium – This is the amount of money you pay to keep an insurance policy. These payments are usually charged in regular increments—often fortnightly, monthly or yearly.
Policy schedule – When you buy life insurance, there’s a lot to remember: your policy number, amount of cover, the date when the policy starts… Thankfully these details can all be found in one place. The policy schedule is a summary of your policy and is updated each year or anytime changes are made to your cover.
Exclusion – Sometimes a life insurance policy cannot cover everything. Exclusions refer to the things that won’t be covered, whether that’s a dangerous occupation, adventurous hobby or a medical condition you had before you purchased the policy. It’s always wise to read the policy wording, as the list of exclusions can vary between different companies or different products issued by the same company.
Pre-existing condition – This refers to a medical condition, sickness, injury or disability that you developed before you bought your life insurance policy. These may not be covered by some policies at all, or only after a certain amount of time has passed. Similar to exclusions, read the policy wording to see what your insurance company considers a pre-existing condition.
Waiting period – After you buy a life insurance policy, you may need to wait before you can claim some benefits. This is known as a waiting period, and it may limit the types of claims you can make during a set period of time. After the waiting period ends, you’ll be able to make a claim for any events normally covered by your policy (subject to any exclusions or pre-existing conditions that may still apply).
Claim – After you pass away, your family can make a request—or claim—to the insurance company to pay out your policy. Some life insurance policies also let you make claims if you are diagnosed with a terminal illness.
Benefit & Beneficiary – This is the amount of money that’s paid after a successful claim and who it’s paid to. With Momentum Life for example, the person taking out a policy gets to pick both the benefit amount and their beneficiaries.
Lapse – If you don’t pay your premiums, your policy will be cancelled or will lapse. When this happens, the life insurance company will not pay the benefit for any claims that are made. Keeping your payment details up-to-date is one way to help prevent a policy lapse.
This is a general guide to common life insurance terms that we hope you find helpful. As with any type of insurance, you may want to review the policy wording for your specific product to see how these words and others have been defined.
More insurance questions? Find out if you’re making these six life insurance mistakes.
About Author: Momentum Life is a leading provider of Life insurance and Funeral insurance in New Zealand.
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The content provided in this article is for information purposes only. The information is of a general nature and does not constitute financial advice or other professional advice. To the extent that any of the content constitutes financial advice, it is limited to Momentum Life products only and does not consider your specific financial needs or goals. You should consider whether the information is appropriate for you and seek independent professional advice, if required.
All product information is correct at the time this article was published. For current product information, please visit the Momentum Life website.
