Long-term insurance can sometimes seem confusing, with its array of specialised terms and jargon. Whether you’re an insurance professional, a policyholder, or simply curious about the industry, this blog post aims to demystify the glossary of terms commonly used in long-term insurance. At the end of this article, you’ll have a clear understanding of these concepts, enabling you to navigate the industry with confidence.
Let’s start with the basics. Long-term insurance, also known as life insurance, provides financial protection to individuals and their beneficiaries in the event of death, disability, or critical illness. It offers coverage for an extended period, often spanning years, decades, or lifetimes.
The premium is the amount of money policyholders pay at regular intervals, such as monthly or annually. It ensures that the policy remains active, allowing the insurance company to provide coverage and benefits as agreed upon.
A policyholder and life insured are often but, in many cases, not the same person. The life insured is the natural person who is insured under a specific policy against certain claim events, whereas the policyholder is the natural or juristic person in whose name the insurance policy is held. For example, a company may own the policy which insures the life of a key person, or a wife may own the policy where both husband and wife, as well as the kids, are insured under the policy.
A nominated beneficiary is the person or entity designated by the policyholder to receive the insurance benefits upon the policyholder’s death or a qualifying event, such as disability or critical illness. A crucial aspect of estate and succession planning involves ensuring that your beneficiary nomination accurately reflects your wishes, leaving no room for confusion during the estate administration process. By tailoring beneficiary nominations to the specific policy or investment, financial advisors can effectively reduce estate costs and ensure a smooth, efficient inheritance for their loved ones, free from delays.
The death benefit in a Retirement Annuity is the sum of money paid out by the insurance company to the designated beneficiary upon the policyholder’s death. The first R550 000 payable at death from a pension, provident or retirement annuity fund is tax-free. This applies to the aggregate of all retirement fund lump sums received over the member’s lifetime.
Cash value, also known as surrender value or policy value, is the savings component of certain life insurance policies, such as whole life or universal life insurance (life-long cover). It grows over time through investment returns and can sometimes be accessed by the policyholder during their lifetime through policy loans or withdrawals.
A surrender charge, also known as a withdrawal charge or surrender fee, is a fee imposed by the insurance company if a policyholder decides to terminate or surrender their insurance policy before a specified period. It aims to recover some of the costs incurred by the insurer during the initial years of the policy.
In the context of a life insurance policy, “claims” refer to requests made by the beneficiaries or policyholders to the insurance company for the payment of benefits after the insured person’s death. When the insured individual passes away during the policy’s active period, the beneficiaries, who are designated by the policyholder, can submit a claim to the insurance company. The claim process involves providing necessary documentation and information to support the validity of the claim, such as a death certificate and policy details.
Upon receiving the claim, the insurance company will assess its validity and review the policy’s terms and conditions. If the claim is deemed legitimate and falls within the coverage of the policy, the insurance company will pay out the death benefit to the designated beneficiaries.
A holistic financial plan usually also includes living benefits to protect individuals while they are still alive, such as income protection, disability lump sum or impairment, critical illness and sickness benefits. Claim events are specified by each insurer at the time of inception of a policy and the benefits pay out proportionately depending on the claim event.
In the insurance industry, an intermediary, also known as an insurance intermediary or insurance agent/broker, is a professional or entity that acts as a mediator between insurance companies and customers (individuals or businesses) seeking insurance coverage. Intermediaries play a crucial role in facilitating the purchase of insurance policies and providing valuable services to both insurers and clients.
- Intermediaries educate clients about various insurance products available in the market, helping them understand the coverage options, terms, and conditions.
- They analyse the specific insurance requirements of clients based on their individual circumstances or business operations. This enables them to recommend suitable insurance policies that match their needs.
- Intermediaries work with multiple insurance companies and have access to a wide range of insurance products. They help clients find the most appropriate policies from different insurers based on their needs and budget.
- Intermediaries help policyholders with applications, claims, policy renewals, endorsements, and changes to their insurance coverage.
Understanding the terminology used in long-term insurance is essential for navigating the industry with confidence. This blog has provided a solid foundation for grasping key concepts. Whether you’re considering a policy, managing an existing one, or simply expanding your knowledge, familiarising yourself with these terms will empower you to make informed decisions and communicate effectively within the industry.
As the industry evolves, new terms may emerge, and existing ones may take on different meanings. However, armed with a solid understanding of the basics, you’ll be better equipped to navigate the ever-changing landscape of long-term insurance.