Common life insurance terms

Life insurance can seem overwhelming – different types of cover, levels of sum insured, policy exclusions and waiting periods. Our glossary may explain some of the most commonly used life insurance terms. In this article, we provide factual information only, to help you understand what is life insurance.

To help navigate through some technical terms related to life insurance, we’ve provided a basic explanation of some of the terms or phrases you might come across when learning about life insurance and what they mean, in our words. They may be described differently, or not at all, in other resources or reference materials.

Be aware that different insurers’ policy wording may differ, and the features of their products may also differ. To make sure you understand what you need to know, you can check the relevant Product Disclosure Statement, the policy terms or speak with the insurer or a financial adviser before deciding to apply for a life insurance product.

Cover

Describes the type of insurance and the circumstances where a benefit may be payable. In other words, the insurance or protection provided by the contract of insurance. This is generally outlined in the Product Disclosure Statement and documented in the policy schedule.

Premium

The amount of money you pay, or another person or entity pays for your life insurance cover. Depending on your insurer, you may be able to choose the payment frequency, for example monthly, quarterly, semi-annually, or annually.

Sum insured

The agreed amount (also known as benefit amount) that an insurer will pay when a claim has been accepted. This can be a lump sum or monthly benefit depending on the cover and is generally shown in the policy schedule.

Waiting period

The period before some, or all, of a life insurance policy’s coverage comes into effect. During this waiting period, you can’t make a claim and benefits aren’t payable.

Duty to take reasonable care not to make a misrepresentation

When you apply for insurance, the insurer will ask questions about your personal circumstances, such as your health and medical history, occupation, income, lifestyle, pastimes, and current and past insurance.

You have a legal duty to take reasonable care not to make a misrepresentation to the insurer. A misrepresentation is a false answer, an answer that is only partially true, or an answer which does not fairly reflect the truth. This duty also applies when you extend or make changes to existing insurance and reinstate insurance.

If the duty is not met, this can have serious impacts on your insurance. Your cover could be voided from inception (treated as if it never existed), or its terms may be changed. This may also result in a claim being declined or a benefit being reduced. 

There may be circumstances where insurers will later investigate whether the information given to them was true. For example, the insurer may do this when a claim is made.

Life insured

The person whose life is insured, not necessarily the same person as the Policy Owner.

Policy Owner

The person(s) or entity named on the life insurance policy schedule who controls the policy, pays the premiums, and decides who will receive the benefit. The policy owner is not necessarily the same person as the life insured.

Underwriting

A term used by insurers to describe the process of assessing a person’s risk as part of a life insurance application.

When you apply for insurance, the insurer will ask questions about your personal circumstances, such as your health and medical history, occupation, income, lifestyle, pastimes, and current and past insurance. This information is assessed by the insurer to determine if your application can be accepted and if so, on what terms and cost.

Pre-existing condition

A condition for example an injury, sickness, or symptom you had before the date your cover started.  

Generally, if you are applying for a policy that is underwritten, the insurer will ask questions about your personal circumstances including your health and medical history. This information is used by the insurer to determine if your application can be accepted, and if so on what terms and cost.

Exclusions

An insurance company may choose not to cover certain events or conditions under the terms of its life insurance policy, for example, a hazardous sport or medical condition. This means, a life insurance claim won’t be paid if the injury, illness or death is caused by or related to one of these exclusions. Standard Exclusions are outlined in the Product Disclosure Statement with specific exclusions to you, detailed in your policy schedule.

An underwriter may also apply exclusions on your policy when evaluating the person’s risk.

Beneficiary

The nominated person or entity that will receive the benefit from your life insurance policy if you die.  

If you acquire insurance through superannuation, the Trustee of your superannuation fund will determine how your death benefit will be paid – this can be to a nominated beneficiary.

Target Market Determination (TMD)

A public document that sets out the class of consumers a financial product is likely to be suitable for, i.e., the target market. It also outlines any conditions for how the financial product can be distributed to consumers. You can usually find the TMD for a life insurance product on the insurer’s website.

Our life insurance partner is TAL, and you can find their TMD here. The information you provide on the TAL website will be subject to TAL’s Privacy Statement and Privacy Policy, available on their website.

Lapse

The cancellation of an insurance contract and end of the life insurance cover if premiums are not paid.