Life Insurance Terminology Explained

Have you ever found yourself lost in a sea of confusing words while trying to understand your life insurance? 🌊 Let’s break down the complexities of Life Insurance Jargon that can leave anyone baffled. As advisors, we often assume that what’s clear to us is clear to others, but sometimes even simple terms can sound like a foreign language. Think of it as the Parseltongue of the insurance world (for those unfamiliar with Harry Potter, Parseltongue was the language of serpents understood only by gifted magicians).

🔍 Don’t worry, navigating the world of life insurance can be overwhelming, especially when faced with unfamiliar terms. But fear not, this comprehensive guide will provide you with a clear understanding of life insurance terminology.

📚 Let’s start with types of insurance:

1) Term Life Insurance 

2) Whole of Life Insurance

1) Term Life Insurance: Term life insurance policies are popular among those seeking affordable coverage for a fixed duration (a set period of time), ensuring that their loved ones are financially protected in the event of an untimely demise.

2) Whole of Life Insurance: whole life insurance offers lifelong protection. This type of policy guarantees a death benefit payout regardless of when the policyholder passes away (as long as premiums are paid on time!).

To expand on this, the maximum period a person can select for Term Life insurance is 50 years while a Whole of Life Plan can last till the date that the policyholder kicks the bucket, irrespective of his/her age at death.

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💡 Now let’s move on to other important insurance features to consider:

🎯 Coverage Amount: Determining how much coverage you need is crucial when selecting a policy. Taking into account factors such as outstanding debts, income replacement needs, education expenses for children, and funeral expenses will help determine an appropriate coverage amount e.g., if you are the only working person in a household with children, you should consider a higher cover amount to aid your family in case of your untimely death.

💰 Premiums: Premiums are regular payments made by the insured in exchange for coverage provided by the insurer. Understanding how premiums are calculated based on factors like age, health condition, smoking status, occupation, and coverage amount will help you budget accordingly. e.g., if you possess factors that put you at more risk such as occupational hazards or life-threatening illnesses your premium will be inevitably higher.

For instance, Sandra is 42 years old and was recently diagnosed with diabetes. She is a smoker and her body mass index (BMI) is much higher at 37. With the multiple health risk factors, Sandra’s premium for life insurance will be much higher than her friend, Jessica who is the same age, non-smoker, in good health, and good BMI.

🔄 Conversion Feature: This is the guarantee that at the end of a term life cover, a person can move into another term life cover, irrespective of any medical issues that occurred during the first term. Also, called the medical free conversion feature. Jane took out her 20-year term policy when she was 32. Now at 52 years, her initial term is coming to an end. However, she was diagnosed with breast cancer, after her 49th birthday and is still undergoing treatment. If she has to take a brand-new policy, it will probably be hard to get life insurance. Since Jane had built in a conversion feature in her first policy, she can use that to convert the old policy for a fresh term. The conversion can then continue upto age 90(this age can differ from one insurance company to another, two insurers only allow conversion to age 84)

Read more about:

1. 1. How Much Life Insurance Do I Need?
2. 2. What is a Life Insurance Trust in Ireland?
3. 3. What is Whole Of Life Insurance in Ireland? Everything You Need To Know

Indexation: Indexation helps you to keep the real value of life insurance benefits in line with inflation. Let us make this more simple. You understand that €100 in your hand today is not the same value next year. You might buy less of the same stuff then than you can buy now with €100. Why? Blame inflation. So, to keep the real value of your life covered, life companies increase the benefits by a certain percentage every year for a certain percentage increase in premium every year. That is what indexation is all about. When inflation was near zero, I personally did not bother advising on it, but the world has changed now with money value declining rapidly.

🛡️ Riders: Riders are additional provisions that can be added to enhance our base policy’s functionality further. Common riders include accelerated serious illness cover (allowing you access to a portion of the death benefit if diagnosed with an illness from the insurer’s serious illness list), waiver of premium riders (waiving premium payments in case of disability), and child term riders (providing coverage for children).  Personal accident cover, Hospital Cash, and the Whole of Life continuation features are some other popular riders. When choosing these, ask your advisor to explain rider benefits in plain language until it is understood.

🚫 Policy Exclusions: It is crucial to understand any exclusions or limitations within your policy. Common exclusions may include pre-existing conditions like cancer or a family history of some Cancers (eg: having one or more family members with a breast cancer diagnosis)

⚖️ Underwriting in Life Insurance: The Role of Underwriting in the Life Insurance Application Process is a crucial step in placing your policy, ensuring that every applicant is thoroughly evaluated at the application stage and their risks are accurately assessed. Underwriting acts as a gatekeeper, meticulously analyzing various factors such as medical history, lifestyle choices, and financial stability to determine an individual’s insurability.

💡 Knowledge is power, and understanding life insurance jargon will empower you to make informed decisions for you and your loved ones’ financial security. If you found this guide helpful, feel free to share it with your network! 📢

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Finally, If you have any questions in relation to this you can reach me personally on 01 582 3525 or email me at joseph@financiallife.ie

Thanks for reading

Joseph

Disclaimer: The information provided in this blog post is for informational purposes only and should not be considered professional advice. It is advisable to seek expert financial advice for personalized guidance regarding life insurance.

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