The article is taken from our new Life Insurance Guide which aims to make insurance easier to understand and therefore making it easier to make the right decisions when it comes to protecting what's important. To download the full guide, please click here.
Accidental death benefit (aka accidental death cover)
Accidental death cover is a form of life insurance that only pays out if the insured person dies as a result of an accident. For younger lives this type of may be more relevant as accidents tend to be more prevalent at this age group
A beneficiary is the recipient of your insurance payout, in the event of your death. This could be, a spouse or your adult children, known as dependents, the bank if you have a loan,the trustee of your estate, usually the executor of your will, or anyone named on your policy, known as a non-dependent.
You are often able to also nominate more than one beneficiary – usually your partner and children. You should update your listed beneficiaries every time your situation changes (e.g. when you have children).
The benefit period is the length of time you pay to get your benefits, in the event of a claim. Say, for example, you need to claim on your income protection, and your benefit period is 2 years. If your claim is approved, you will then receive income from your insurer for 2 years.
A claim is the process of your beneficiaries requesting for the payout of your life insurance policy benefit, following your death. A claim can also be made to you or your representative (under a power of attorney) if you suffer a covered event such as medical trauma, disablement, or terminal illness.
If your claim is admitted depending on the type of cover, a lump sum or monthly amount will be released to the beneficiary.
Duty of disclosure
When an insurer underwrites or assesses you, they’re trying to determine how big a risk you are to insure and to what amount if any your risk differs from other New Zealanders of a similar age, sex and lifestyle. Insurers determine this based on the information you provide – generally relating to your health and lifestyle.
The following are considered when determining how risky you are:
- pre-existing medical conditions
- family medical history
- whether you smoke (or how long since you’ve stopped),
- dangerous sports or activities you partake in (and frequency of those), and
- your occupation.
Your obligation to let your insurer know the above information is known as your ‘duty of disclosure’. If you don’t let them know, you run the risk of your family being unable to claim on your policy in the future.
The amount paid to your beneficiary following your death.
Some health and lifestyle situations aren’t covered by your policy because they’re deemed too risky e.g. if you are a professional sports person. You may struggle to find insurance that covers these situations, as they’re often excluded from coverage. If you speak to a Financial Adviser, they may be able to source an insurer that specialises in covering these more complex risks. This cover will however come at a premium.
Expiry (or expiry date)
The time when your insurance policy expires, as set out in the policy’s schedule. After this period, the policy can no longer be claimed on.
Contact your insurer for more information closer to the expiry date as sometimes there is an option to extend the term of the cover.
If you don’t pay your premiums within a set period as outlined in your policy, it’ll lapse. Once it lapses, you are no longer covered, and if you want to reactivate the policy you are likely to need to provide new medical evidence and or you will need to apply for a new insurance policy and once again undergo underwriting. The exact period of failure to pay premiums that results in a lapse is outlined in your product disclosure statement (PDS) and is usually 90 days.
The life insured (or ‘the insured’) is the individual named on the insurance policy and upon whose death the policy will pay out a claim.
If you haven’t disclosed any/all relevant information as requested by your insurer during an application, your claim might be declined and on the worst case scenario, your policy might be void. This means that your policy would be cancelled and all the premiums might not be refunded.
This is the contract between you and the insurance company. In it, you agree to pay a regular premium for insurance and the insurer in turn will pay out for claims, as outlined in your policy schedule.
Policy commencement date
The actual date at which an insurance policy for the life insured becomes active. Remember if the insurance is to cover a bank loan or mortgage, make sure the date is no later than the date that the loan is drawn down.
The anniversary date that a policy was issued. This generally becomes relevant at the time of renewal (e.g. one year after you first took out your insurance). If you have a policy that is either yearly renewable or has a 5 or a 10 year term, the policy anniversary will be the date on which the premiums will increase.
Your insurance policy will, in most cases, be automatically renewed. A life insurance policy, unlike some fire and general polices policy cannot be cancelled unilaterally by the insurer during the term of the policy and whilst you continue to pay your premiums
Premium loading (or just ‘loading’)
Loading is an increase of premium, due to a higher likelihood of death, injury or disablement. One great way to reduce your premium loading is to address these risk factors in your life. Quit smoking, or stop doing any dangerous activities. Remember, this is the standard rate that all people pay with a similar condition and of a similar risk to the insurer. So, you should seriously consider accepting the premium loading as it may well be the last chance you have to purchase life insurance in the event that your condition deteriorates.
The sum insured is the amount you have insured yourself for. This amount depends on a range of factors such your level of debt, family needs and the lifestyle that you want to provide for your family if you were no longer to be around.
The term of your life insurance is a defined period of time for which the your policy is valid for. Most life insurance policies continue to provide cover until this term ceases, provided the policy is renewed each year. When you reach age 99, it’ll stop permanently.
Your product’s term is outlined in the product disclosure statement.
A terminal illness is a condition you will likely die from within 12 months. If included in your policy, when this diagnosis is confirmed by a medical professional, you can then make a claim on your life insurance policy. This will help you meet the payments of treatments, and aid in any other ongoing living costs. This payment will however mean that upon your death, your beneficiaries will no longer receive a pay-out.
Term life insurance
Term life insurance is ‘Life Insurance’. It’s a policy that provides cover for a defined term (see term) that pays a benefit upon death or diagnosis of terminal illness (if covered). The proceeds of your life insurance policy’s payout (i.e. the benefit) go to your beneficiary. Term life is like your motor vehicle policy if there is no claim there is no refund of premiums paid.
Trauma is a severe medical event, (e.g. cancer, stroke, heart attack or paraplegia), that you can insure against these types of events. What you can get insured for differs from policy to policy, however all policies tend to cover the main events. Trauma insurance is a highly specialised area as they use complex medical terminology so you should speak to a Financial Adviser to be sure that the chosen plan is fit for purpose.
Because of this, be sure to refer to the policy wording document to establish what is covered in your situation.
A waiting period is a defined period of time that you’re required to wait for before a benefit can be paid out. Most life insurance plans have a 12-13month waiting period for suicide. This means that in the event of death by suicide, no benefit will be paid until this waiting period is completed.
The article is taken from our new Life Insurance Guide which aims to make life insurance easier to understand and therefore making it easier to make the right decisions when it comes to protecting what's important. To download our full guide, please click here.