New to life insurance? You’re not alone, and you’re in the right place.
Understanding life insurance can sometimes feel like learning a new language. With so many technical terms and industry phrases, it's easy to feel unsure about where to start.
That’s why we’ve created this alphabetical guide to common life insurance terms, so you can feel more confident about understanding your cover and making informed decisions.
Activities of daily living
This is one of the key assessments applying to Total and Permanent Disability (TPD) claims. It refers to your ability to perform basic tasks by yourself so you can live independently (e.g., feed, dress, bathe, go to the toilet, and get in and out of bed and a chair).
Benefit Indexation
An optional feature that helps your life insurance cover keep pace with rising living costs over time.
Each year, your insurer may offer to increase your insured benefit amount by a set percentage or in line with inflation. This means that if you need to make a claim in the future, your cover may be better able to provide the level of financial support you originally intended.
This is not to be confused with indexation upon claim for Income Protection (IP) payments, which applies after claim when payments are made in instalments and may increase in line with CPI over time if that option is selected.
Benefit period
The maximum period for which an insured monthly benefit is payable under an Income Protection policy while you remain eligible to receive claim payments. Benefit periods generally include two years, five years or to age 65.
Duty to take reasonable care not to make a misrepresentation
You must take reasonable care to provide complete, accurate, and truthful information when applying for, changing, or reinstating insurance. If incorrect or incomplete information is provided, your cover may be changed, reduced, declined, or treated as if it never existed.
Exclusion
An event or medical condition that is not covered by the policy and therefore won’t receive a benefit payment. For example, pre-existing medical conditions, a hazardous occupation or participating in a dangerous leisure activity. Depending on the policy and provider, these may be specified when you are offered cover or applied more generally.
Income Protection Cover (also known as Salary Continuance Cover)
Insurance designed to replace your income with a monthly payment of up to 70% of your income if you are unable to work due to injury or illness.
Lapse
If your premium hasn’t been paid for a specified period (in other words, it lapses), then your cover will end and you’ll need to apply for a new policy. Check the Product Disclosure Statement (PDS) for your insurer’s definition of lapse and eligibility conditions for reinstatement of a lapsed policy.
Loading
A loading is an additional premium charge to reflect the higher risk factors that statistically lead to a higher likelihood of claim. For example, due to health, occupation or pastimes.
Policy schedule
The document you receive on acceptance of cover that contains the specific details of your policy, including any special conditions, such as loadings or exclusions. The policy schedule and PDS make up your policy with your insurer.
Product Disclosure Statement (PDS)
The document which contains all the terms and conditions of the life insurance cover. Along with the policy schedule, the PDS makes up your policy with your insurer.
Sum Insured
The amount of insurance cover provided under your policy. This is the maximum benefit payable for an insured event, subject to the policy terms and conditions.
Total and Permanent Disability (TPD) Cover (also known as Disability Cover)
Insurance designed to pay a lump sum if you become seriously ill or injured and can’t work again. The finer details may differ between insurers, so please check the PDS so you know exactly what you’re covered for.
Trauma Cover (also known as Critical Illness Cover)
Insurance designed to pay a one-off lump sum if you’re diagnosed with one of the serious medical conditions listed in your policy, for example; cancer, stroke, heart attack, major head injury, or chronic conditions like multiple sclerosis.
Underwriting
The process an insurer goes through to assess how likely a policy holder is to make a claim. The outcome of the assessment might mean a loading or exclusion is applied or the application is declined if the risk factor is too high. Read more about the underwriting process.
Variable Premium (formerly Level Premium)
Variable premiums generally start higher than Variable Age-Stepped premiums but don’t go up each year based on your age. Variable premiums are designed to be held over a long period of time. However, the amount of Variable premiums you pay over the life of your policy can sometimes be more than what you’d pay for Age-Stepped premiums.
Variable premiums are not fixed. There are several reasons for premiums to change; increases to the sum insured (e.g., via benefit indexation) will increase your premiums, as would any adjustments to the premium rates applied by the insurer.
In addition, depending on your policy, Variable premiums may change to Age-Stepped on the policy anniversary before your 65th or 70th birthday if your cover continues after this date.
Variable Age-Stepped Premium
You can choose for your premium to be based on the current premium rate applicable for your age at each policy anniversary. This means that the actual premium payable by you will increase each year. Compared to Variable premiums, Variable Age-Stepped premiums will be less in the earlier years and more in the later years. Similarly, increases to the sum insured (e.g., via benefit indexation) will increase your premiums, as would any adjustments to the premium rates applied by the insurer.
Waiting period
The number of days you choose to wait after your date of disablement (i.e., injury or illness) before Income Protection benefit payments can begin. Waiting periods generally include 30 days, 60 days, 90 days and 2 years. The benefit period starts once the waiting period has been completed.
