Life insurance terms explained

ARTICLE

7 September 2026

3 min read

Confused by some of the words and phrases used in life insurance? We've got you covered!

Taking out life insurance is an important step in helping protect yourself and your loved ones. To feel confident about your cover, it’s helpful to understand some of the common terms you'll come across. While life insurance can sometimes seem complex, many of the key concepts are simpler than they first appear.

In this alphabetical guide, we'll explain some of the most common life insurance terms, so you can better understand your cover and make informed decisions.

Benefit indexation

Select as an opt-in during the application process to automatically increase your insured benefit each year on the Policy Anniversary to help keep pace with inflation. For Income Protection policies, the increase is based on the Consumer Price Index (CPI). For Lump Sum policies, the increase is the lesser of the CPI Increase and 3%. Indexation applies to the insured amount before a claim is made.

Benefit period (Income Protection)

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 exclusion is a specific event, activity, occupation, or medical condition that is not covered under your policy. If a claim arises from an exclusion, no benefit will be paid. Examples may include certain pre-existing medical conditions, injuries related to a hazardous occupation, or participation in high-risk activities such as motor racing. Exclusions may be specifically applied to your policy when cover is offered or may form part of the standard policy terms.

Financial Services Guide (FSG)

A document that financial services providers must give customers before they provide financial advice or products. Its main purpose is to help customers make an informed decision about whether to use the provider’s services.

Lapse

When premiums are not paid within 60 days of the due date, the policy lapses and the cover ends (you stop being covered for any benefits you have selected). A lapsed policy may be reinstated within 90 days, subject to eligibility requirements, payment of overdue premiums, and potentially providing evidence of good health.

Loading

A loading is an additional premium charge applied when an insurer assesses a higher-than-standard risk. Loadings may be based on factors such as your health, occupation, lifestyle, or hobbies, and are determined during the underwriting process.

Policy Schedule

The document issued when your cover is accepted that outlines the specific details of your policy, including your cover, insured amounts, premiums, and any special conditions, such as loadings or exclusions. Together with the PDS, it forms part of your insurance contract.

Premium Structure

The way your insurance premiums are calculated and how they may change over time. Common options include Variable Age-Stepped, Variable, and Optimum premiums.

Product Disclosure Statement (PDS) and Policy Document

This document provides information about product features and benefits, including risks, fees, costs, medical definitions, and any limitations or exclusions that may apply.

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.

Underwriting

The assessment process used when applying for insurance to determine whether cover can be offered and on what terms. Information such as your health, medical history, occupation, lifestyle, and pastimes may be considered. The outcome may result in cover being offered as applied for, offered with loadings or exclusions, or declined.

Variable Age-Stepped Premium

Premiums are based on your age each year and generally increase as you get older. Increases are usually larger at older ages as the risk of illness or death rises.

Variable Premium

Premiums are initially based on your age when cover starts, rather than your age each year. They generally start higher than age-stepped premiums but increase more gradually over time. Premiums may still change due to factors such as indexation, insurer repricing, taxes, or changes in discounts.

Waiting period (Income Protection)

The number of days you choose to wait after your date of disablement 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.

Get affordable, flexible cover

With AIA Priority Protection you can apply online in minutes with no medicals or complicated paperwork. You’ll receive fast, flexible cover designed to help protect what matters most, plus a 5% discount if you apply online.

Disclaimer:
Copyright © 2026 AIA Australia Limited (ABN 79 004 837 861 AFSL 230043). This is general information only, without taking into account factors like the objectives, financial situation, needs or personal circumstances of any individual and is not intended to be financial, legal, tax, medical, nutritional, health, fitness or other advice. Before acting on the information in this publication, individuals should consider its appropriateness having regard to such factors. The source information of the articles is current as of the date of publication and may be subject to change. While the information contained herein is believed to be accurate, AIA Australia expressly disclaims any and all liability for representations or warranties, expressed or implied, contained in, or for omissions from, the information.