A beginner's guide to life insurance jargon
Published on Wed Jun 19 2024 in Family
A beginner's guide to life insurance jargon
Have you ever been stuck on the phone trying to understand the confusing world of life insurance? … You’re not alone! This is your guide to an understanding of life insurance in plain English, casting away the jargon and clarifying the terms most insurers think everyone just knows.
What is a premium?
It's a different word for 'payments' - it’s the money you pay for your insurance policy on a regular basis – such as fortnightly, monthly, or annually, to maintain cover.
What is a beneficiary?
A beneficiary is a person that you have chosen to get your payout from the insurance policy when you die. You (the Policy Owner) would typically nominate the beneficiary when the insurance policy is first purchased.
It's important for Policy Owners to carefully consider and update their beneficiaries as needed to ensure that the insurance payouts go to the person that they want it to go to.
Why do I have to name a beneficiary?
Naming a beneficiary means that you make sure that the funds from the insurance policy are given to the correct person and as fast as possible.
By naming a beneficiary, you're stating who must receive the funds from your insurance policy when you pass away. This will mean that the insurance funds will typically bypass the probate process. The probate process involves validating a person’s Will and administering their estate. This can be complex, costly, and lengthy, as it typically takes 6-8 weeks. Also, a Policy Owner who hasn’t created a Will and who has an estate that is over $15,000 - then this process could take 6-24 months. Naming a beneficiary helps your loved ones avoid this and allows them to receive the funds more quickly and easily.
What is a Policy Owner?
A Policy Owner is the individual that owns an insurance policy. This person or entity has the rights and obligations associated with the policy. The Policy Owner is responsible for paying the insurance premiums to ensure the policy remains active. The Policy Owner has the right to appoint and change the beneficiaries, who will receive the benefits in the event of a claim.
What is a Life Insured?
The term "Life Insured" refers to the individual whose life is covered by a life insurance policy. If you're the Life Insured, it means the insurance cover is based on your lifespan. If the Life Insured passes away while the policy is active, the insurance company will pay out a benefit to the beneficiaries named in the policy.
What is an enduring power of attorney?
An enduring power of attorney (EPA) is a legal document that you sign to give someone you trust to make financial and legal decisions when you are incapacitated or unable to, for example after a serious illness or accident. They are known as your "attorney" or "agent".
Can I get Life Insurance if I have health issues?
The short answer is, yes most likely but it can be more challenging and potentially more expensive.
If you have health issues, you’ll need to provide additional information about them when you’re organising your life insurance. This will most likely also increase your premiums because your health issues are a higher risk to the insurer.
How does the life insurance payout work?
When a person with Life Insurance either passes away or has a Terminal Illness, the insurance company will pay a lump sum of money to the people that the Policy Owner selected (beneficiaries). Here's how the process typically works:
1. Death or diagnosed with a Terminal Illness: When the insured person is either diagnosed with a Terminal Illness or passes away, the beneficiaries must inform the insurance company as soon as possible. When this is done it will trigger the claims process.
2. Claims Process: The insurance company sends the necessary forms and instructions for submitting a claim to the beneficiaries. These forms usually require basic information about the insured person, such as their name, policy number, and date of death, along with a certified copy of the death certificate.
3. Verification and Review: Once the claim forms are submitted, the insurance company verifies the information and reviews the policy details.
4. Payment Processing: Once the claim is approved, the insurance company processes the payment of the insurance payout.
5. Distribution to Beneficiaries: Once the insurance company processes the payment, the funds are sent to the beneficiaries based on the instructions given by the Policy Owner. The beneficiaries may use the money for any purpose, such as covering funeral expenses, paying off debts, replacing lost income, or achieving long-term financial goals.
How much coverage do I need?
This is a personal question that only you can truly answer. Contacting a financial adviser may be helpful when you’re trying to figure this out.
A couple of helpful things to consider are: if you pass away or are diagnosed with a Terminal Illness, can your family still afford your mortgage? Will your spouse possibly lose your house? Perhaps getting enough insurance to cover your mortgage would be ideal. Or would your family have enough money to pay for your funeral should you pass away? Perhaps getting funeral insurance would help your family to keep moving forward during this time.
Is insurance a saving account?
Insurance is not considered a savings account. It is simply cover that pays out a lump-sum when the insured either passes away or is diagnosed with a terminal illness. If you cancel insurance cover before then, you do not receive any of your premiums back.
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The content provided in this article is for information purposes only. The information is of a general nature and does not constitute financial advice or other professional advice. To the extent that any of the content constitutes financial advice, it is limited to Momentum Life products only and does not consider your specific financial needs or goals. You should consider whether the information is appropriate for you and seek independent professional advice, if required.
All product information is correct at the time this article was published. For current product information, please visit the Momentum Life website.