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Glossary Of Life Insurance Terms 2024

Elaine Brookes Steve Case

Author: Steve Case - Insurance Expert

Reviewed & Fact Checked By: Elaine Brookes

Updated: 19th March 2024

glossary of life insurance terms

We have compiled a glossary of life insurance terms commonly used in our industry. Refer to this section as you read the information on our site. It will clarify the terms we use most frequently.

We will be happy to explain because we do not want you to make an uninformed decision regarding life insurance coverage.

Acceptance

When a life insurance company approves an application. Some companies provide instant acceptance, while others take up to two weeks to decide.

Accident, Sickness, and Unemployment

Replacement income covers regular expenses, including monthly mortgage payments, should the insured become unemployed or fall ill. This coverage typically lasts for up to 12 months.

Convertible Term Life Insurance

Level term life insurance coverage features an option to eventually convert the policy into a different type of coverage, such as whole of life coverage.

Critical Illness Cover

Coverage that pays a lump sum benefit upon diagnosis of a specific medical condition or total disability during the policy term. The insured generally must survive for at least one month following diagnosis before a payment will be issued.

Included conditions vary by life insurance company but typically should include cancer, heart attack, coronary artery bypass, kidney failure, stroke, multiple sclerosis (MS), and major organ transplants. Critical illness cover is usually offered with life cover, and the insured selects the coverage level and policy term.

Decreasing Term Life Insurance (also called Mortgage Payment Protection Insurance or MPPI)

Term life coverage features a lump sum benefit that reduces in line with the outstanding balance of a capital and interest repayment mortgage, while premiums usually remain fixed.

Diabetes Life Insurance

Specialised diabetics life coverage with available insurance companies based on the type of diabetes, onset age, family history, treatment method, and other factors

Family Income Benefit Life Insurance

Upon the death of the insured, it provides an income throughout the term of the policy rather than paying a lump sum

Group Life Insurance

Coverage is provided to many people, such as individuals working for a single employer. A group life policy features more leniency in underwriting limits. The minimum group size is generally 20 to 25 people, though some companies will provide group life to as few as 15 people.

Guaranteed Premium

The premium remains the same throughout the policy term

HIV Life Insurance

Life insurance for people diagnosed with human immunodeficiency virus (HIV). Some insurance companies require an individual to be on Highly Active Antiretroviral Therapy (HAART) to obtain this coverage.

Income Protection Insurance

Coverage that provides income benefits upon a diagnosis of ill health. Income continues until the insured returns to work retires, dies, or the policy term expires.

Increasing Term Insurance

Coverage and premiums increase annually by a predetermined amount without a medical examination requirement. People who need additional coverage to mirror income or inflation increases often select this coverage.

Indexation

When a policy is tied to inflation, with benefits and premiums increasing annually

Insurable Interest

When one party has a dependent and/or close financial relationship with another. Insurable interest relationships exist between spouses, a company and key workers, in a close company between director shareholders, and someone who financially depends upon another person.

Key Person Life Insurance

Life coverage for a person who significantly contributes to a company’s financial status. Directors, partners, executives, and shareholders are commonly considered key people.

The coverage features a lump sum payout benefit designed to financially protect the company upon the death of the individual.

Lapse

When a policy ends due to non-payment of premiums.

Level Term Life Insurance

A policy that provides a fixed lump sum payment if the insured dies within a specified period.

Life of Another

A life insurance application is made by someone other than the person being insured. Before an insurance company will accept this application, the applicant must provide proof that he or she has an insurable interest in the insured.

Mortgage Protection Life Insurance

Same as Decreasing Term Life Insurance.

Renewable Term Life Insurance

Short-term life coverage may be renewed every five to ten years without a medical underwriting requirement.

Reviewable Premium

The premium is subject to review by the insurance company. A review is usually conducted after the first ten years and in five-year increments thereafter. To account for the additional cost of coverage based on the older age of the insured, the premium may be increased if the policy value is low.

Settlor

The person who establishes assets under a trust. This individual agrees to the trust deed provisions, appoints trustees, and designates trust beneficiaries.

Terminal Illness Benefit

The option to file a claim on a life insurance policy if the insured is diagnosed with fewer than 12 months to live. This benefit is usually included in a life insurance policy at no extra charge.

Total and Permanent Disability (TPD)

A provision in a critical illness policy that covers any medical conditions and illnesses not listed elsewhere in the policy when there is no hope of recovery over the long term.

Trust

A legal structure that allows the benefits of a life insurance policy to be paid to beneficiaries in a straightforward process. The benefits are paid to the trustees who pass these to beneficiaries according to the terms outlined in the trust deed.

A Grant of Representation is not required for this money to be paid to trustees. When a life insurance policy is included in a trust, it protects beneficiaries, partners, or shareholders. Proceeds are typically paid outside of the deceased’s estate and are not subject to inheritance tax.

These can be used to help fund any inheritance taxes due. A flexible power of appointment trust is the type of trust most commonly used with a life insurance policy. It permits the settler to appoint new trustees and change beneficial interest.

Trustees

Individuals or a corporate body appointed by a trust settlor to administer a trust according to its terms and conditions. Trustees serve as legal owners of the assets in the trust but retain these in trust for the trust beneficiaries.

Waiver of Premium

This policy feature is offered at an additional cost and covers premium costs when the insured becomes ill.

Whole of Life

Whole Life Insurance coverage lasts for the lifetime of the insured and pays a lump sum benefit upon the death of the insured. It may feature an investment component or be offered as a non-investment, guaranteed premium policy.

Will

A legal declaration by an individual that names one or more people to manage his or her estate and transfer owned property upon his or her death