Insuring life is one of the wisest investments we make in life owing to all the risks and challenges we face in life. The cover offered by a life insurance policy provides financial protection against all those unforeseen events in life that poses further challenges. Most importantly, it secures the financial interests of our loved ones by ensuring they do not suffer in leading a respectable life in case of death or disablement of the insured member.
It also doubles up as an investment option to help you in facing long and short term goals that need a financial impetus. Over the last decade or so, life insurance products have seen some innovative changes where you get multiple benefits that primarily includes cover for life and disability along with pleasing returns through market linked products where monies are invested in hand picked portfolios.
Whatever you goal may be, it makes sense to put your hard earned money into life insurance. It's important to stay up to date with the latest developments in this segment to seize the right opportunities. In our efforts to bring to you, comprehensive information on banking and insurance products in the Philippines, we present to you, a glossary of the most commonly used terms in Life Insurance.
Commonly Used Life Insurance Term In The Philippines
1) Accidental Death Benefit: A lump sum monetary Benefit provided by the insurer to the beneficiaries in case of death of the insured member.
2) Accelerated Death Benefit: A monetary compensation provided by the insurer to the immediate family members or beneficiaries in cases where the primary insured member’s life expectancy is limited (Certified by a doctor).
3) Assignment: The process of transferring the rights and benefits in the life insurance policy from one person to another.
4) Assignee: The recipient of the transferred rights after assignment of the life insurance policy.
5) Applicant: Used to denote the person who is applying for the life insurance policy. In some cases, an applicant can differ from the policy owner or the proposed insurer.
6) Application: A form of certain format provided by the insurer to the applicant or their agent that contains columns and fields to be filled by the latter. Details such as name, occupation, medical condition, contact information and other details should be provided by the applicant on the basis of which the insurer will ascertain the premium payable and other terms. The application form also acts as a reference document to be retrieved at a later date in case of a dispute or disagreement between the insurer and the insured.
7) Agent (Associate): An authorized person who is licensed to propose and sell life insurance policies to customers along with servicing the policy such as collection of insurance premium payment. Generally, an Agent is only associated with a specific insurance company.
8) Attained Age: The legal age of the insured as on the policy date or as on a specific date. Some of the insurers use this concept to ascertain the insurance premium and fixing other terms.
9) Benefit: It refers to a monetary sum paid by the insurer either to the insured or the immediate beneficiary upon death of the insured. All other benefits such as benefit payable upon permanent disability are also included.
10) Beneficiary: Used to address the person who is designated to receive the benefits under the life insurance policy upon fulfillment of the conditions for paying out the benefit such as death or disablement.
11) Backdating: A process where the actual effective date of the policy is adjusted by backdating it earlier than the application date. It is a common practice used to offer a lower premium to the applicant. Most of the life insurance are backdated for up to 6 months.
12) Bank Draft: An arrangement between the insurer and the insured where the latter allows the former to make manual or electronic debit from the bank account for payment of premium and other obligations as of the specific date. In most cases, it is done electronically through Electronic Funds Transfer (EFT).
13) Claim: A notification issued by the insured to the insurer for payment of benefits under the policy term upon fulfillment of the laid out condition(s) such as death.
14) Cash Value: The savings portion in certain types insurance policies such as unit linked life insurance policy that represents the policy owner's share. It grows over a period of time and earns interest charges for the owner on the basis of the pre-agreed conditions.
15) Contract: A term used to denote a formal agreement made between the insurer and policy owner sealing the terms and conditions of the policy. A contract is a legal agreement that is binding on both or all the parties involved. It contains the nitty gritties of all possible responsibilities and risks and acts as a reference document in case of a dispute.
17) Contestable Clause: A provision made by the insurer in the contract (policy) during which the policy may be contested or voided on the basis of misrepresentations made by the insured in the application or other examinations such as medical. Generally, the Contestable Period is 2 years from the time of issuing the policy after which it becomes incontestable.
18) Critical Illness Maximum Benefit Amount: A benefit amount (either a percentage of the Maximum Benefit Amount) as stated in the policy schedule that entities the insured member to a lump sum amount or is paid out as per schedule in case of critical illness.
19) Date of Issue: The official date of issuing the life insurance policy. In most cases, the policy also comes into effect from the date of issue.
20) Death Benefit: A monetary benefit amount paid to the beneficiary upon death of the insured. The reason for death is not a consideration while disbursing the death benefit barring the suicide clause.
21) Deductible: An amount that the insured is required to bear as their share in the claim to draw the monetary benefit. Deductible is generally payable in benefits related to health.
22) Dependent: A family member of the insured member who becomes eligible to receive the policy benefits under the contract. Dependents are generally parents, spouse and children.
23) Dividend: A term used to denote the surplus distributed by the insurer to the policy owners whose policies are participating in market linked funds. These are participating policies where an element of risk is involved.
24) Effective Date: A term used to denote the date when the policy is activated after the contract is signed between the insurer and the insured. It is also referred to as Policy Date.
25) Endorsement: A formal change or revision in the policy information that can be initiated by either of the parties. It is a formal acknowledgement made by the insurer in response to a request for change made by the insured. A formal letter is issued to document the change known as Endorsement.
26) Expiration Date: The date on which the policy becomes ineffective and ceases to provide the cover on the insured member. This date will be provided on the cover page of the policy document.
27) Free Look Period: A provision made in the life insurance policy that extends the policy owner a stipulated time to review and examine the policy. During this period, they policyholder has the right to return the policy and seek a full refund of the premium amount paid (minus medical examination charges, if any) if he/she is not satisfied for any reason.
The Free Look Period generally varies between 10 to 30 days from the date of issuance.
28) Face Amount: The coverage amount stated in the policy terms that is payable to the insured or the beneficiaries in the event of death or maturity. The Face Amount does not generally include other benefits such as Accident Death Benefit or Dividends payable (if any).
29) Final Expenses: The expenses incurred during the time of the death of the insured person such as funeral and probate costs.
30) Guaranteed Insurability: A term used to denote the policy owner’s right to purchase additional insurance by means of rider options at specific intervals. The insured member can look at rider options to enhance the policy value.
31) Grace Period: A term used to represent the additional time provided by the insurer from the time of due date of the premium by which the policyholder is required to make the payment, failing to which the policy will “Lapse”.
32) Insurance Policy: A physical document issued to the policy owner by the insurance company providing details such as terms and conditions and the actual contract that serves as the reference document for both the parties.
33) Issue Date: The official date of issuing the policy when the policy becomes effective.
34) Insurability: The factors upon which the underwriting is done before issuing the policy or deciding the terms of the policy and determining the insurance amount. Some of the most common factors are health status & medical history.
35) Lapse: A term used to represent the termination of the insurance policy due to non-payment of premium by the policy owner. The coverage ceases to become ineffective if it lapses.
36) Lump Sum: A payment made by the insurer to the insured or their beneficiary as a settlement. A full amount is paid as a lump sum instead of settlement in installments.
37) Living Benefit: In case of diagnosis of terminal illness of the insured member, a portion of the death benefit is paid to them to deal with the medical situation, known as the Living Benefit. Alternatively, it is also known as Accelerated Death Benefit.
38) Maturity Date: A date that signifies conclusion of the policy and end of the contract term. Upon maturity of the policy, the Sum Assured and other benefits are payable by the insurance company to the policyholder, provided all clauses have been fulfilled which includes, regular payment.
39) Misrepresentation: The process of making a verbal or written statement to represent the correction in the policy terms.
40) Medical Examination: Depending on the type of life insurance policy availed, an examination is initiated by the insurer to inspect the physical well being of the applicant before underwriting the policy. Key decisions such as deciding the premium amount to be paid are made on the basis of the results found after the medical examination.
The costs relating to the examination is generally borne by the insurance company.
41) Member: A term used to denote the insured person(s) under the policy.
42) Non-Smoker: A rating assigned to the category of applicants who do not smoke tobacco or consume nicotine products. Since smokers are considered a risk to insurance companies, non -smokers are offered a lower premium benefit.
43) Optional Coverage: Covers that are not mandatory in the life insurance policy. Also known as riders, optional coverage is offered by the insurance company to enhance the policy value and make it comprehensive. They come at payment of an additional premium amount.
44) Participating Policy: A life insurance policy which offers interest on the investment made on the basis of performance of the underlying fund. Here, monies are invested by the insurer into market linked products and dividends are distributed on the basis of profits made.
45) Premium Mode: The frequency of payment opted by the insured at the time of availing the policy which decides the intervals at which they are required to make the payments. Premium Modes are generally available in monthly, quarterly, annual and semi annual options.
46) Payment Mode: The medium or channel the insured member chooses to pay the premiums when they fall due. Depending on the options available, the insured can choose payment via EFT (Electronic Funds Transfer), Remittance at Cash Counters, Checks and so on.
47) Policy: A document issued by the insurer to the insured which serves as reference document for both the parties. It contains the base contract coupled with other details such as premium paid and validity of the policy.
48) Policy Date: The date on which the policy comes into effect. The policy date is generally provided on the cover page of the policy document.
49) Premium: A fixed or variable amount made by the insured to the insurer towards purchasing life insurance cover or towards renewal of the contract to ensure continuity in the cover.
50) Premium Receipt: An acknowledgement provided by the insurer to the insured member as a receipt to the payment received towards premium. The receipt can be used for tax purposes as a proof.
51) Quote: Used to denote an estimate provided by the insurance company to an applicant in response to his application for a life insurance policy. The quote primarily contains the estimated premium, underwritten on the basis of the information provided by the applicant. The quote is just an estimate and subject to further revision.
52) Renewal: A process where the policyholder makes a premium payment as per the payment just before expiry of the policy term towards continuing the policy for another term.
53) Rider: An exclusive provision made to the existing terms of the policy aimed at enhancing the policy value by adding a certain benefit. The Rider should be purchased separately by paying an additional premium which will be attached to the main policy.
54) Risk: A term used to represent the probable risk associated with the insured such as death or a known illness. This term is commonly used by the insurer throughout the contract.
56) Revocable Beneficiary: Designation of beneficiary that can be revoked without taking consent from the beneficiary.
57) Surrender: A process where the life insurance policy is cancelled by the insurance company in response to a request for cancellation from the policyholder.
58) Surrender Charge: A charge deducted by the insurance company if the policy owner decides to surrender the policy during the term. This charge is also applicable if the policyholder has borrowed money under the policy and fails to return the sum as per the terms.
59) Suicide Clause: An exclusive clause underwritten in the life insurance policy which deals with suicidal death of the insured member. If the insured commits suicide within the specified period, the insurance company will not be liable to pay the coverage amount promised. Instead, the liability is limited to returning the premium paid minus loans or outstanding premiums.
60) Special Compassionate Benefit: A percentage of the coverage amount that is paid in case of death of the insured that was not caused by an accident.
61) Settlement: A term used to denote the process of settling the proceeds promised under the life insurance policy before formally nullifying the policy.
62) Term Insurance: A type of life insurance that provides life cover for a specified period only and not for the entire lifetime like the traditional insurance cover. This type of policy pays out a high death benefit in case of loss of life and offers minimum or no returns. It generally comes at low premium value for a high cover.
63) Term Conversion: A process where a Term Insurance Policy is converted into a permanent policy for a specified duration.
64) Underwriting: An intense process of evaluating applications received from applicants who wish to buy life insurance from the insurance company. Carried out by the insurer/associate, it acts as decision making process for the insurer and helps them in granting/denying insurance. The Underwriting process also helps in estimating the premium payable.
65) Underwriter: A qualified individual who carries out the underwriting process to evaluate the application and prepares a detailed report for further scrutiny.
66) Uninsurable Risk: A risk that not covered under the life insurance policy due to excessive liability for the insurance company. A classic example for uninsurable risk is current health conditions.
67) Universal Life Insurance: A dual benefit life insurance that offers life cover and accumulates cash value in a single policy. It offers flexible premium payments and relaxation of other terms, generally not found in a traditional life insurance product.
68) Variable Universal Life Insurance: A type of Universal Life Insurance policy which offers cover for death at flexible premium premium payments. It also offers the insured member, an opportunity to build cash value by way of investment in market linked funds. Returns from the investments is not guaranteed and is purely based on multiple factors such as fund performance.
69) Waiver of Premium: An optional rider in the policy which waives further payment of premium upon total disability of the insured.
70) Whole Life Insurance: A life insurance plan which offers cover for the life of the insured member with level premiums payable for the entire lifetime.
71) War Clause: A clause in the life insurance policy which that limits liability of the insurance company if the insured member dies as a result of war.