Life insurance terms and definitions
- Actuary. A professional who assists insurance companies in designing and pricing policies based on the level of risk involved, which they calculate using mathematical probabilities and statistics.
- Assessor (also known as a “loss adjustor”). A professional who acts for insurance companies by investigating claims to determine whether or not they are valid.
- AFCA (Australian Financial Complaints Authority). A body that provides consumers and small business with dispute resolution for financial complaints. AFCA considers complaints about credit, finance, loans, insurance and more.
- APRA (Australian Prudential Regulatory Authority). The regulatory body that oversees and regulates Australia's financial services industry, including insurance companies, banks and superannuation funds.
- ASIC (Australian Securities and Investments Commission). The regulatory body that oversees Australia’s corporate bodies, markets and financial services. ASIC enforces the law within these sectors, including the Insurance Contracts Act 1984.
- Accidental death cover. A form of life insurance where a benefit is only paid if the insured person dies as the result of an accident.
- Automatic indexation. A feature of many insurance policies where benefits (and premiums) are increased each year in line with the consumer price index (CPI) and inflation.
- Agreed value policy. An income protection policy where a benefit amount is paid based on your salary at the time of application. The opposite is an “indemnity value policy”, where you are paid a benefit based on your salary at the time of the claim.
- Benefit. An agreed amount you are paid either in a lump sum or in ongoing payments when you make a claim on your life insurance.
- Benefit period. The period an insurer will pay your income protection insurance benefit if you are unable to work (usually a maximum of five years).
- Beneficiary. The person or persons you nominate in your life insurance policy to receive the proceeds of your pay out upon your death. The beneficiary is often a partner or family member.
- Broker. An insurance specialist who helps you find the best insurance for your needs in return for a broker’s fee.
- Claim. The request you or your beneficiaries make to an insurer for financial compensation when you suffer an insured loss.
- Capital. The financial assets (eg, premiums, shares, investments) an insurance company must legally have to cover their liabilities, such as claims.
- Cooling-off period. The time frame during which you may cancel your policy if you change your mind and receive a refund of premiums paid. This period usually lasts for 30 days from the policy commencement date.
- Duty of disclosure. Your requirement to provide truthful and accurate information to an insurer at the time of applying for your policy. Your risk factor (and premium cost) is determined by this information. If it is untruthful or inaccurate, an insurer can legally refuse to pay your claim at a later date.
- Disability. For insurance purposes, this term is defined as the inability to work due to illness or injury. “Total disability” means you can’t work at all and “partial disability” means you can only work in a reduced capacity.
- Exclusions. Circumstances in which an insurer will not pay a benefit due to health or lifestyle factors that increase your level of risk (eg, hazardous sports and activities or, in the case of life insurance, self-inflicted injuries or suicide).
- Expiry date. The time when an insurance policy expires and can no longer be claimed against (eg, at a certain age in the case of life insurance).
- Financial Ombudsman Service (FOS). An independent and free service available to consumers and insurers to help settle unresolved disputes. As of 1 November 2018, the FOS was merged into the new Australian Financial Complaints Authority (AFCA) along with the Super Complaints Tribunal (SCT) and the Credit and Investments Ombudsman (CIO).
- Financial planner. A licensed adviser who provides financial planning advice and is often engaged after someone receives a large, lump sum benefit payout.
- Guaranteed future insurability. A feature of many insurance policies that lets you increase your insured sum without further health checks or underwriting if a specified event occurs (eg, marriage, birth of a child, mortgage increase).
- Grace period. The period of time (usually up to 28 days) in which an insurance company will continue to maintain your cover if you haven’t paid your premium on time, providing that you pay it within this period or arrange to pay two premiums in the following month.
- Home duties. An occupation category used in income protection insurance to define those who look after the home on a full time basis (See: Occupation category).
- Income protection insurance. Cover that replaces 75% of your income if you are unable to work due to illness or injury (also known as “salary continuance insurance”).
- Interim cover. Temporary cover provided during the waiting period while your policy is being underwritten. In the case of life insurance, it usually only covers death due to accident.
- Joint life insurance policy. A life insurance policy covering more than one person (usually a couple) which only pays out on the first death.
- Key person insurance. A life insurance policy that a company takes out on a key employee to cover the negative effect that their death would have on the company's operations.
- Level premium. A fixed premium based on your age at the start of the policy. Level premiums remain the same throughout the term of your policy (apart from possible CPI increases), unlike stepped premiums, which increase every year as your age increase.
- Lapse. Where your cover is discontinued and your policy may be cancelled due to non-payment of your premium within a specified time.
- Loss adjustor. See “Assessor”.
- Multi-policy discount. A premium discount many insurers offer to those who have more than one policy with the same provider.
- No claim period. A period after your policy commences during which a benefit will not be paid. In the case of critical illness cover, there is typically a 90-day no claim period from your policy start date.
- No claim bonus. A form of discount in which an insurer rewards you for not making a claim over several years by reducing the cost of your premium.
- Non-disclosure. The act of failing to disclose relevant information to an insurer when applying for cover. If this information comes to light at a later date or when a claim is made, it usually results in the claim being denied and the policy being cancelled.
- Occupation category. Where occupations are grouped together for insurance purposes according to their level of risk (eg, white-collar, blue-collar and high-risk occupations).
- Pre-existing condition. A medical condition that you knew about or were being treated for prior to applying for insurance. Unless it is declared by you and your insurer approves it, your policy will not cover it (except if it is listed in the insurer’s automatically-covered conditions).
- Product disclosure statement (PDS). A document that insurance companies are required to provide to you by law, which lists the terms and conditions of your policy. It is important to read and understand this document before purchasing cover.
- Premium loading. An additional cost that you may have to pay for your insurance if your insurer considers you a higher-than-normal risk (eg, smoker, overweight, hazardous occupation etc).
- Premium waiver. A feature or option of some insurance policies where no further premiums are required once a claim is made. Premium waivers are often a feature of trauma insurance.
- Qualifying event. An event which occurs that is covered by your policy (also known as an insured event).
- Renewal. The process of renewing your insurance policy on its anniversary date for a further period. This is also a good time to review your cover to see if it still meets your needs.
- Risk. The exposure accepted by an insurer when they agree to provide you with cover. The higher the level of risk you pose to them, the greater their exposure and the more they will charge you for insurance.
- Sum insured. The maximum amount your policy will pay out in the event of a claim.
- Stepped premium. A premium that is recalculated based on your age at each policy anniversary and increases as you get older.
- Smoker. For insurance purposes, someone who has used any tobacco product in the last 12 months (eg, to be classified as a non-smoker, you would need to have not smoked for at least 12 months).
- Term life insurance. Another name for life insurance, it pays your beneficiaries a lump sum benefit if you die or are diagnosed with a terminal illness.
- Total and permanent disability (TPD) insurance. Pays a benefit if you are totally and permanently disabled and will never be able to work again.
- Trauma insurance (also known as “critical illness insurance”). Covers you if you suffer a specified serious trauma event such as cancer, heart attack or stroke.
- Terminal illness. For life insurance purposes, a condition diagnosed by a medical professional where you are given less than 12 months to live.
- Underwriting. The process of assessing an insurance application to determine the level of risk – based on age, health and lifestyle factors – to decide whether an applicant should be covered and at what cost.
- Underinsurance. A situation where you don’t have enough insurance to cover your potential losses (eg, not having enough funeral insurance to cover the cost of a funeral).
- Void. For insurance purposes, this is when your policy is no longer valid and you cannot make any claims. For example, your policy will be void if you breach your duty of disclosure. See: Duty of disclosure.
- Waiting period. The period of time you must wait (as determined in your policy) before an insurance benefit can be paid.
- X-ray/lab. A diagnostic lab test or x-ray performed in support of basic health services. Lab tests include services like blood work and urinalysis. X-ray services include basic skeletal X-rays, ultrasounds, MRIs, and CT scans.
- You and your. You and your refers to the person(s) named on the policy.
- Zurich. Zurich is a life insurance brand in Australia.