How To Read My Life Insurance Policy

Accelerated rider benefits (or acceleration of death benefit)

This is a clause that allows for all or a portion of the death benefit to be paid out to the policyholder before they die, for example, if they are diagnosed with a terminal illness. When a claim is made against this clause, the amount claimed is subtracted from the total life insurance value.

Annual benefit increase

The payout amount or the value of your benefit may increase each year so that it can continue to provide adequate cover according to yearly inflation.

Annual premium increase

Your benefit may increase yearly, but so will your monthly premiums.

Beneficiary

The beneficiary is the person or people who benefit from the policy should the insured pass away. That means that the beneficiary gets the payout or the death benefit. Most policies are for families and the beneficiaries will be a spouse and/or children, but in professional situations, other individuals or entities can be beneficiaries too. Your policy document will clearly state all the beneficiaries and the policy owner decides who these beneficiaries are.

Cession (or to cede)

Cession of your policy means you agree that a third-party will receive the payout for your policy. Sometimes, people cede a policy as surety on loans, such as home loans, until the debt is paid off. This is a temporary cession. Other times, the policy owner can cede all rights to a third-party permanently, known as absolute cession. Think very carefully before ceding your policy to another party.

Policy date (date of coverage)

This is the official date from which your policy becomes fully active. This means that, if the insured dies on or after that date, the beneficiary will receive the death benefit as per the terms and conditions in the policy.

Death benefit

This term refers to the amount of money the beneficiary gets when the insured dies. It is also a part of the policy where the details of the claim are laid out, including how the benefit will be paid out to the beneficiary.

Declaration page (or schedule of benefits)

The declaration page comes after the cover page and contains the insured’s personal information, the death benefit amount, the type of policy, the monthly premium, the issue date of the policy, the policy number, the risk class, accelerated benefits, and the beneficiaries.

Dependant

Dependants are individuals or entities that rely on the insured person for financial support.

Disability income rider (or accelerated benefit

This clause allows for the income of the insured to be replaced with funds from the policy if they become disabled and are unable to work.

Disability premium waiver

This allows for the monthly premium to be waived should the insured become disabled (in other words, you don't need to pay a monthly premium anymore).

Elimination period

An elimination period applies to disability or dread disease claims. It’s a period of time which allows the insurer to assess the validity and type of claim. Basically, it’s the time between when you become ill or injured and are unable to work, and when the benefits are paid out.

Exclusion

In this section of your policy, the life insurer states circumstances that they don’t cover or situations that will invalidate or limit the death benefit. A simple example would be suicide not being covered within a specific time period at the start of a policy. Different policies have different exclusions, so this part is important to take note of before signing.

Illustrations

These aren't cartoons. Illustrations in policy documents graph or depict how the policy will perform at certain interest rates. This is most relevant to permanent policies. Illustrations can also show cash values, premiums, and other relevant factors.

Insurance age

This is how old you are when the policy becomes fully active.

Irrevocable beneficiary

A type of beneficiary that has a vested interest in the policy. Usually the policy owner cannot change this beneficiary without the irrevocable beneficiary's permission.

Level premiums

Level premiums stay the same for the entire policy lifetime and can apply to term and permanent policy types.

Loading

An extra amount added on to your premium for risks applicable to the insured specifically. An example would be loading for a person who takes part in extreme sports where injury or death become a greater risk.

Long-term care accelerated benefit (or rider)

This accelerated benefit will pay out part or all of the death benefit to pay for caregivers and long-term care necessary in situations where the insured becomes critically ill.

Non-accelerated benefits (or standalone benefits)

These benefits work independently of the other benefits in the policy. If you claim on your disability cover, for example, it won’t affect your death benefit amount, unlike accelerated benefits.

Non-participating

Insurers sometimes invest a portion of a policy’s premiums. In non-participating policies, the policyholder is not entitled to the dividends from these investments.

Permanent or whole life insurance

This is a type of life insurance policy that is designed to cover you for as long as you live and to pay out when you die.

Policy loan

This is a term applicable to universal life insurance and describes a situation where the insured or policy owner borrows money against the value of the accumulated funds in the life insurance policy.

Policy owner

The person who is responsible for payment of the monthly premiums and who owns the policy.

Premium

This is the amount of money the policy owner pays (usually monthly) for the policy. In the section of your policy titled ‘premiums’, you will find the details of the amounts the owner must pay and any grace periods or applicable terms and conditions.

Rating (or risk rating)

The insured is assessed by the insurance provider to determine their risk rating, which affects the premiums and benefits. Factors like your age, job, gender, level of income, and level of education can influence your rating.

Reinstatement

This is when the policy owner reinstates a lapsed policy (for example when payments were stopped). Not all policies allow for reinstatement, so check this section of the policy if you feel this will be relevant to your situation.

Substandard risk

This describes an insured individual who is a bigger risk than the average person. Their premium will be loaded to accommodate for the higher risk rating.

Survival periods

This describes a situation where the insurer will only pay out a claim after the insured has survived or remained alive for a predetermined period of time following a claim for, say, dread disease.

Term conversion rider

This benefit allows you to turn your term life insurance policy into a permanent life insurance policy after a specific amount of time.

Term insurance

A type of life insurance that covers you for only a predetermined amount of time. Term policies are cheaper and simpler, but they are only valid if a claim is made within the specified amount of time.

Underwriting

The process the insurance provider uses to assess your risk rating and your premium.

Universal Life Insurance

Universal Life Insurance is a life insurance policy that pays out a lump sum when the policyholder passes away, and the policy holder gains interest on the sum of money placed into the investment account. In time, the amount in the investment account can match the amount you’re insured for. When this happens the policy holder will no longer need to make payments.

Waiting periods

The time that must pass before your policy cover comes into effect.