A free nz community service
Insurance Terms
Often the language used within the insurance industry and in insurance documents can be confusing for the General Public. This list in Simple English is to help in understanding such terms.
INDEX
- ACC
- Accelerated Cover
- Accident Only Life Insurance
- BMI - Body Mass Index
- Buy Back Option
- Buy-Sell Agreement
- Defer
- Direct Debit
- Excess
- Exclusion
- Funeral Advancement Benefit
- Future Insurability Option
- Guaranteed Insurability
- Inflation Adjusted
- IP - Agreed Value
- IP - Indemnity
- IP - Loss of Earnings
- Key Person Insurance
- Level Premium
- Lapse
- Level Premium
- Loading
- Medicals
- Needlestick Option
- Non-Disclosure
- Offer of Terms
- Partnership Insurance
- Policy Owner
- Pre-Existing Condition
- Rate for Age
- Registered Adviser
- Reinsurer
- Special Events Increases
- Stand Alone
- Stepped Premium
- Terminal Illness
- TPD - Total & Permanent Disability
- Trauma - Trauma Insurance
- Underwriter
- Waiting Period
ACC
ACC in New Zealand, stands for Accident Compensation Corporation. They help to prevent injuries and get New Zealanders and visitors back to everyday life after an accident by providing support. When it comes to insurance it is important to fully understand that ACC is only involved in accident cases and not illness cases, such as Heart Attack, Stroke, or Cancer. For this reason many consider Income Protection Policies. Please see more information on ACC here
Accelerated Cover
This is often used with Trauma Cover or Disability Cover (TDP), alongside Life Cover. At claim time the benefit paid comes out of the Life Cover. So for example a person has $300,000 of life cover and $100,000 of accelerated trauma cover. The person has a heart attack and $100,000 is paid out from the life cover. That leaves $200,000 of life cover. Some policies allow for the life cover to be increased back up to the initial sum (in the example, back to $300,000), after the trauma claim has been paid, this is called a Buy Back Option.
Accident Only Life Insurance
Covers death by Accident Only - so therefore does not cover death by sickness, such as Heart Attack, Stroke, or Cancer. Definitions of "accident" will usually appear in the policy document.
BMI - Body Mass Index
BMI is widely used measure to assess whether a person has a healthy body weight relative to their height. BMI is calculated using a simple formula based on a person's weight and height. Underwriters use BMI as an indicator when assessing an application for insurance to decide if there may be any added health risk due to a person's current body shape and physique.
Buy Back Option
Usually associated with Accelerated Trauma and/or Total & Permanent Disability Cover (TPD). This option allows for the claimed cover amount to be topped back up to the original sum without the requirement for another application or medical evidence.
Buy-Sell Agreement
A business with Partners may decide to put in place Partnership Insurance to fund the purchase of the other Partner's business shares should that Partner not be able to continue in the business due to death, trauma, or disability. The Buy-Sell Agreement is a legal arrangement between the Partners as to what conditions the Buy-Sell Agreement must take place. Partners agree that if the conditions exist for a Partner, that Partner "must" sell and the other Partner or Partners must purchase at a pre-arranged share purchase price or formula.
Defer
In some cases after an Underwriter has assessed an application, they will "Defer" the application for possibly a period of time, or until more information becomes available (which could be financial information or medical information such as test results). Defer does not mean the application has been turned down, it has just been put on hold.
Direct Debit
Most insurance companies accept premium payment by Credit Card, Annual Payment, or the most common, by Bank Direct Debit. The person paying the premium authorises the insurance company to deduct premiums for their bank account each month, even as the monthly premium changes over time. In most cases the bank direct debit cannot be cancelled by the bank account owner without authorisation from the insurance company.
Excess
This is the amount that the policy owner agrees to pay in the event of a claim. Most people are familiar with excess when it comes to car insurance, but excess also applies to Health Insurance. With some policies the excess is "per policy year" rather than per "claim". So that means if you have a family Health Insurance, the excess may only be payable once for the whole family for the year, even if you have multiple claims. If you have Health Insurance check to see what your excess says. The higher the excess, the lower the premiums, but if you decide to lower your excess, in most cases a new application is required.
Exclusion
While assessing an application the Underwriter may decide to exclude certain medical conditions or pastimes from the proposed cover. Often an exclusion is worded in such a way to also exclude medical conditions that are related to the excluded condition. For example a person with existing diabetes may also have an exclusion for blindness, which can be related to diabetes. Exclusions can be reviewed in some cases after a period of time, or sometimes exclusions are for the life of the policy. Read more about Exclusions here
Funeral Advancement Benefit
Some insurance companies will provide an advance payment of a portion the life insurance cover in order to pay for immediate funeral expenses.
Future Insurability Option
You can apply to increase your cover "without the need for more medical information or tests", at certain time intervals, such as every third policy anniversary. There are limits to the increases allowed. Each insurance company has it's own conditions.
Guaranteed Insurability
This is an option on some insurance policies that allows the cover amount to be increased at a later date without the requirement to provide more medical information at that time or undergo medical tests (for example blood tests, x-rays, or scans). Often this option must be used at certain times or within stated time periods, for example within 60 days of turning a particular age, or taking out a mortgage. Usually the increased cover is limited to a maximum level, for example 50% or 100% of the original cover amount.
Inflation Adjusted
Cover can be manually or automatically adjusted at renewal time (usually upwards) according to the official Government annual inflation rate. Insurers generally provide the option of this happening automatically each year or upon the policy owner's request.
IP - Agreed Value
This Income Protection structure is often chosen by people with proven higher long term incomes. Financial information to confirm historical income is provided before the commencement of the policy at application time, and is assessed by the Underwriter. A maximum monthly claim is agreed upon. Normally at claim time a Net payment is made with no requirement to pay tax. Premiums not generally tax deductible. Claim periods and Wait periods are normally the same as Indemnity cover, below.
IP - Indemnity
This is the most common form of Income Protection, purchased by those with steady and predictable incomes. In general, at claim time, it pays up to 75% of the normal income. At claim time proof of income needs to be provided, including any ongoing income that may still result. Cover per claim can be for 2 years, 5 years, To Age 65, To Age 70. The longer the claim period, the higher the premium. Waiting periods before claiming from 2 weeks to 104 weeks. The shorter the wait period the higher the premium. Normally at claim time a Gross payment is made which is taxable. In most cases currently, premiums for Indemnity based cover are tax deductible for most people.
IP - Loss of Earnings
Generally this is a combination of an agreed amount of cover based on recent historical income, and the actual loss of income at claim time. At claim time the most advantageous calculation is paid to the policy owner. Many people with fluctuating incomes, such as Self Employed choose this option. Claim periods and Wait periods are normally the same as Indemnity cover, above.
Key Person Insurance
A Key Person within a business can be anyone that significantly affects the income of the business, the value of the business, or the running of the business. If such a person was suddenly not there due to long term sickness, injury or death, their absence would cause significant financial loss or disruption to the business. A Key Person might be a Director, a Technical Person, a Salesperson, an Office Manager, an Owner, or any other highly valued member of staff. Key Person Insurance generally involves some levels of Life Insurance, TPD, and sometimes Trauma cover. See more information here
Lapse
When a policy monthly payment has been missed, often due to lack of funds in the bank account, a notice is usually emailed or mailed to the policy owner. With most insurance companies they will wait until the following month's premium due date and then deduct twice the premium (a premium for that month and a premium for the missed month). If three monthly premiums are missed in a row, most insurance companies will cancel the insurance, this being called a lapse or lapsed policy. It is possible to restart such a policy in some cases if all payments are paid back up to date.
Level Premium
Most often associated with life insurance cover, level premium means the premium generally starts higher (when compared to Stepped Premium), but then stays the same for a period of time. The period of time is often from 10 years, or up to Age 80. Premiums do increase a little if an inflation adjustment option has been selected. There may be options for Level Premium Income Protection and possibly other covers.
Loading
A premium loading is sometimes applied by the Underwriter to a policy to reflect an increased level of risk, and therefore an increased chance of the person making a future claim. This increased risk is typically due to health history, family history, or a pastime or occupation that is considered risky. For example: An $80 per month premium with a 50% loading would increase to $120 per month. Loadings are not always for the life of the policy but some can be reviewed after a period of time, sometimes stated in the Offer of Terms when the policy is put in place. Read more about Loadings here
Medicals
Depending on the information provided in the application form, the Underwriter may request various medical information. This could take the form of Doctor or Specialist reports, scans, X-Rays, GP medical notes, and blood tests. Often (but not always) the insurance company pays for all or some of this information. Such information assists the Underwriter to more accurately assess the true risk and the fairest offer of cover. All such information is always treated as highly confidential. It is common for a standard Physical Examination to be requested. See more information here
Needlestick Option
This option helps those people who work in the medical or emergency services. It provides financial support should you contract HIV, Hepatitis B or Hepatitis C, as a result of an accident occurring as part of your work.
Non-Disclosure
This typically means a person not providing full information at insurance application time, or at claim time. Information that a reasonable person would know or should know or remember. For example a person on their application form states they have no heart problems, but does not mention they went to a Heart Specialist two weeks before. Please see my full page on Non-Disclosure here
Offer of Terms
Many applications are assessed by Underwriters as being "normal risk" with no need for any loadings or exclusions, these are known within the industry as being Clean Skin applications with standard conditions and premiums applying. When an application is assessed as needing an exclusion or a loading, an Offer of Terms outlining policy conditions is provided to the client to approve before the policy is put in place.
Partnership Insurance
A business with Partners may decide to put in place Partnership Insurance to fund the purchase of the other Partner's business shares should that Partner not be able to continue in the business due to death, trauma, or disability. Cover usually involves Life Insurance, Total Disability (TPD), and often Trauma Cover. A Buy-Sell Agreement dictates when a Partner must sell and when a Partner must purchase, at an agreed upon share price or formula. See more information here
Policy Owner
Every policy has an Owner, or in many cases Multiple Owners. The Owner or Owners of the policy receive the payment at claim time. If a person dies as the owner of their own life insurance policy, the claim funds generally become part of the deceased estate. Relationship Partners often take out a Joint Policy where they both own the policy and both generally receive payment at claim time, particularly if one partner dies. The person insured is not necessarily the policy owner, even if that person is paying the premiums. Read more here
Pre-Existing Condition
This generally means any health condition you have ever had in your life. If you are 44 years of age, a pre-existing condition still includes the broken arm you had when you were 5, and the asthma you had 15 years ago. The Underwriter will determine if the condition adds to the potential risk, and if so may exclude, load the premium, or defer.
Rate for Age
Most insurance on "People" is based on their age at the time of application. Over time, as the policy stays in place and as the person becomes older, the rate they pay generally increases. The reason for this is because generally with insurance, and statistically, the chances of a claim increase with age. In later years the risk increases significantly which results in most cases a significant increase in premium.
Registered Adviser
A person who is qualified to talk with you about Insurance and possibly other financial matters. All such people have a registered FSP Number, for example FSP425813. Typically Registered Advisers have completed an extensive New Zealand Certificate in Financial Services to Level 5, although some may have more advanced qualifications. Advisers will often come to your home or office or possibly communicate with you over the phone or an internet video meeting. Normally Registered Advisers do not require payment from you for their insurance advice as they obtain income from either salary or commission or both. Registered Advisers will have access to insurance products from a range of insurance providers.
Reinsurer
In order to spread the risk of claims, insurance companies often use large international reinsurers. So at claim time often Reinsurers will provide some of the claim payment. This process allows for insurance companies worldwide to remain more financially stable.
Special Events Increases
During our lives we have significant events, some of which increase our responsibilities. Some insurance companies allow policy holders to increase their covers without the need for more medical information or tests. Such significant events include: Getting married or entering a civil union, having a baby, starting a new job, getting a pay rise, becoming a carer for the first time, death of a spouse or partner, your child starting secondary school, increasing your mortgage, becoming legally separated or divorced, supporting your child through the first course or a full time tertiary education. Different insurance companies have different "Special Events" definitions. There are limitations on how much additional cover can be taken, and there are time limits that increases can be made within, for each Special Event.
Standalone
Sometimes a benefit is part of, or associated with another benefit. For example: A life insurance policy of $200,000 with a $40,000 "Accelerated" Trauma benefit, means should the person have a trauma claim, they will be paid the $40,000 with the "remaining" $160,000 paid on death. However with a "Standalone" benefit: $200,000 life policy with a Standalone Trauma benefit of $40,000 - at trauma claim time the $40,000 paid out does not affect the $200,000 life insurance benefit, which would be paid out in total on death.
Stepped Premium
A stepped premium is one that generally increases each year. Compared to a Level Premium that is designed to stay the same for a period of time - often 10 years, to Age 60, Age 70, Age 80. Stepped premium is significantly less expensive in the early years of a policy, and increases over the life of the policy. A level premium starts higher, but maintains the same or similar premium for a long period (unless automatically increasing with inflation adjustment option).
Terminal Illness
Within insurance, and more specifically Life Insurance, terminal illness is a disease or condition that in the opinion of a qualified medical professional (Doctor or Specialist), the person is likely to die within the following 12 months.
TPD - Total & Permanent Disability
Typically refers to a condition where the insured person is completely unable to perform any work related to their occupation or any other occupation for which they are reasonably suited by education, training, or experience. There is usually the option to take out cover as either relating to your "own" occupation, or "any" occupation.
Trauma - Trauma Insurance
It is important to understand with Trauma that the definition of trauma is specifically and clearly defined within the policy. It is not left up to the policy owner to decide what a traumatic event is. Typically a Trauma policy will cover many serious conditions which might be sickness or injury related. The most common conditions covered under most policies are: Heart Attack, Stroke, Cancer, Serious Burns, Coma, Blindness, Paralysis, Multiple Sclerosis. There are Basic trauma policies, and Comprehensive trauma policies which cover more trauma conditions.
Underwriter
This is the person who reads and assesses your application for insurance. They have the job of assessing the level of risk they take on if they accept you for insurance. They also determine if any conditions or pastimes will be excluded from your policy, or if you are to pay an increased premium due to a higher level of risk - which is typically health related, job related, or pastimes related.
Waiting Period
This is used in reference to Income Protection. The waiting period is the period a person must be officially off work due to sickness or injury before they become eligible to make a claim. In most cases this is either 4 weeks, 8 weeks, or 13 weeks, but claim periods from 2 weeks up to 104 weeks (2 years) are possible. People can review their wait periods as their jobs, savings, life circumstances, and incomes change over time.