Insurance Glossary

Australian Business Number (ABN)
This is a unique identifier for all Australian registered businesses – www.asic.gov.au
Accidental Cover
Interim cover from when an application form is lodged which provides payment upon accidental death while your application is being formally underwritten usually valid for 90 days.
Accidental Death Benefit
This is an additional benefit to a risk policy providing an extra sum insured in the event of death by accident.
Actuary
A professional person qualified to make calculations and valuations in relation to insurance and investment funds – www.actuaries.asn.au
AFSL
Australian Financial Services Licence – www.asic.gov.au
Agreed Value
This is a type of income protection policy where income is proved at the commencement of the policy and this amount will be payable at the time of claim.
ASIC
Australian Securities and Investments Commission – www.asic.gov.au
Assignment
The process involving the transfer of ownership from one party to another.
ATO
Australian Taxation Office – www.ato.gov.au
Authorised Representative
A person acting for a Financial Services licensee – www.asic.gov.au
Benefit Period
Income protection policies use this term to define the maximum period during which the monthly income benefit is payable (such as 1 or 2 or 5 years or to age 60 or 65).
Beneficiary
A receiver of benefits from an insurance policy.
Body Mass Index (BMI)
A ratio between height and weight often used by insurers in assessing a personal insurance application – www.betterhealth.vic.gov.au
Buy Back Option
A benefit usually offered with a trauma or critical illness policy. This option creates the ability to repurchase or buy back a level of cover after a claim has been paid for a critical illness.
Capital Gains Tax (CGT)
A tax on the increase on the capital value of investments, payable when the capital gain is realised – www.ato.gov.au
Claimant
An insured person who makes a claim.
Commission
A payment made to an intermediary in consideration of placement of a policy.
Consumer Price Index (CPI)
An index measuring the prices at various times of a selected group of goods and services typically bought by Australian households – www.abs.gov.au
Continuation Option
Some forms of group life insurance cover allow an employee on exiting the employer plan to convert (via a continuation option) into a personally held policy (without health evidence). Continuation options must be exercised within a specific time frame of leaving the employer (e.g. 30 or 60 days).
Contract
An agreement between individuals, companies or other entities that binds each party and is legally enforceable.
Conversion Option
An insurance company may allow an insured to convert one insurance policy into an alternate policy without additional health evidence.
Cooling Off Period
Consumer protection/insurance legislation requires an insurer to provide a 'cooling off' period for the consumer to determine if the policy meets their needs.
Crisis Cover / Critical Illness Cover >
Commonly known as trauma cover / recovery benefit – this is insurance for the living. Payable as a lump sum on the diagnosis of specific illnesses. Typically heart attack, cancer or stroke.
Deductible Expenses
Refers to expenses that can be offset against taxable income, e.g. income protection insurance premiums – www.ato.gov.au
Defined Benefit Plan
A superannuation plan where the rules are provided for benefits according to a formula, which usually relates to salary and service – usually associated with government departments or major companies.
Dependant
One who depends on another for financial support.
Disability Insurance
Another name for income protection.
Discount
A price below the usual price.
Disclaimer
A statement that may allow a person or corporation to avoid or attempt to avoid liability.
Duty of Disclosure
A person has a duty to disclose to the insurer anything that the person knows or could be expected to know which could affect the decision of the insurance company to accept the risk of insurance. This same duty applies when a person extends, varies or reinstates a policy. This duty does not apply to information that would diminish the risk to the insurer that is common knowledge, that the insurance company knows or ought to know or where the requirement is waived by the insurance company.
Endowment Insurance
A policy which provides a benefit at a stated date or on prior death of the insured.
Estate Planning
The process of planning and recording your wishes for the distribution of your wealth after your death.
Exclusion
A modification to a standard insurance contract where an underwriter has accepted part of a risk only and excluded certain activities or types of risk.
Financial Ombudsman Service (FOS)
This body provides accessible, fair and independent dispute resolution for consumers and financial services providers – www.fos.org.au
Financial Planning
The process of providing comprehensive advice and assistance to a client for the purpose of meeting that client's financial needs and life goals – www.fpa.asn.au
Financial Services Guide (FSG)
This is a public document which provides details about a Licensee, an adviser, the services and products they provide and how they are remunerated. Any potential conflicts of interest and a complaints process are also outlined.
Frequency Loading
Insurance premiums are expressed as annual but when a client pays either monthly, quarterly or half-yearly premiums, they may incur an additional loading for paying more frequently.
Fringe Benefits Tax (FBT)
A tax on non salary benefits that is paid by employers on behalf of their employees – www.ato.gov.au
Group Life Policy
A scheme providing death and/or disablement cover to a group of people, usually the employees of a company. The premiums are usually offered at wholesale rates.
Guaranteed Renewable Policy
A policy which the insurer is obliged to renew if requested by the insured. Premiums may however be varied by the insurer.
Gross Income
The total income before deductions have been taken away (e.g. Gross salary – salary before deductions) – www.ato.gov.au
Income Protection Policy
A policy which provides income benefits in the event of a loss arising from an illness or accident. Also referred to as income replacement, salary continuance or disability insurance.
Indemnity
This is a type of income protection policy where income is proven at the time of claim.
Industry Superannuation Funds
A superannuation fund established to cover more than one unrelated employer usually operating in a particular industry, e.g. hospitality – www.industrysuper.com
Inflation
An increase in the price of goods and services in the economy. Often measured by the CPI index. – www.abs.gov.au
Insurance Packaging >
Most insurers allow you to package multiple insurance products to cover different events.
Insured
The person whose life is insured.
Insurer
The insurance company that accepts the insured's application.
Keyperson Insurance
This is where a business takes out an insurance policy (death or disablement) which it owns on a key employee in the business.
Level Premium
Level premiums generally remain fixed throughout the duration of a policy. They have a predefined end date which is established at the commencement of the policy. Level premiums are therefore not only determined by the amount of cover required and entry age, but also the duration of the policy. Your premiums are effectively averaged out over the life of the policy. A premium structure which is most suited to long term cover needs.
Licensee
A holder of an Australian Financial Services Licence (AFSL) – www.asic.gov.au
Life Insurance Company
A financial institution with the main business of providing personal insurance against death and disability.
Life Insurance >
Life insurance or death cover is a legal contract with an insurer to provide a predetermined payment upon death.
Life Insurance Quote >
An estimated premium based on basic standard personal information, eg age, gender etc.
Life Office
Another name for a life insurance company.
Lifewise
Lifewise is a long term public awareness initiative of the Australian life insurance industry aimed at educating Australians about the personal risks they face in life, and how they can better manage those risks – www.lifewise.org.au
Loading
An additional premium charged for additional risk.
Lump Sum
A benefit payable in cash rather than as an ongoing income benefit/stream.
Marginal Tax Rate (MTR)
The rate of tax payable on the top proportion of income derived by a person – www.ato.gov.au
Monthly Benefit
The amount payable monthly to the insured under an income protection policy.
Mortality Table
An Actuarial calculation of expected number of deaths each year from the number of persons living at each age and each gender – www.actuaries.asn.au
Multi Life Discounts
Most insurers provide premium discounts associated with multiple life applications such as joint spouse applications and business associates etc.
Net Income
The figure remaining after all necessary deductions have been taken away. The opposite of 'gross' – www.ato.gov.au
Non-Smoker
A non-smoker is a person who has not smoked in the 12 months prior to applying for insurance. Premium rates are normally lower than for a smoker.
Paid-up Policy
A policy where no further premiums are due and payable.
Personal Statement
An insurance applicants personal health, financial details etc given to an insurer which helps form the basis of an underwriter's decision.
Personal Medical Attendants Report (PMAR)
A confidential medical report from your doctor regarding your personal health history.
Policy Owner
A person who owns an insurance policy, commonly the insured person, but it may be another party such as a spouse or business partner or even a company.
Policy Schedule
This is the document issued by the insurer which outlines the specific benefits, terms and conditions as well as the premium under the policy contract.
Power of Attorney
This is a legal document by which the donor appoints another person to act on their behalf.
Premium
An amount payable to an insurer for the insurance cover provided.
Premium Rebate
A percentage of premium paid refunded after certain conditions are met.
Privacy Policy
A privacy policy outlines how your personal information is managed.
Product Disclosure Statement (PDS) >
A legal document lodged and registered with the appropriate regulatory authority that sets out policy terms, conditions etc. Also usually includes the Policy Application.
Professional Indemnity (PI)
A form of insurance held by professionals against negligence or misappropriation of funds.
Proposer
The person who takes out insurance on a life insured (i.e. the policy owner)
Qualifying Period
This is also known as the waiting period under an income protection policy.
Rebate
An amount refunded after certain conditions are met.
Reinsurance
An insurer transferring part of the risk to another insurer.
Risk
The chance of a loss.
Risk Insurance
A generic term referring to personal insurances such as life insurance and income protection.
Risk Management
A strategy to deal with risk – such as risk transfer, risk avoidance and risk retention.
Salary Continuation
Provides income payments in the event of an illness or accident. Usually provided on a group basis under a superannuation plan (i.e. to an employee of a company).
Self Insurance
Refers to the practice of an entity/individual paying funds into a fund they directly control rather than using an insurance company to write a policy. The individual is effectively retaining the risk rather than transferring the risk.
Self Managed Super Fund (SMSF)
SMSFs have the same role as any other super funds; the difference is, generally, that the members of SMSFs are also the trustees. They control the investment of their contributions and the payment of their benefits – www.ato.gov.au
Statement of Advice (SOA)
An SOA sets out the advice you've been given, the basis of the advice, adviser remuneration and any interests, associations or relationships that could influence them – www.fido.gov.au
Stepped Premium
Stepped premiums are linked to age so the premium rate increases, or 'steps up', each year in line with risk.
Sum Insured
The amount of insurance cover that is payable by the insurer upon certain conditions or events being met.
Superannuation
A means of setting aside funds during working life for use as retirement income.
Surrender Value (or Cash Value)
The accumulated net worth of a whole of life/endowment insurance policy if it were to be cashed-in prior to maturity.
Tax Deductible
Refers to an expense that can be offset against taxable income, e.g. income protection premiums. – www.ato.gov.au
Term Insurance
Another expression for Life insurance.
Terminal Illness
The diagnosis of the life insured of an illness which in the opinion of an appropriate specialist physician is likely to result in the death within 12 months of the diagnosis regardless of any treatment.
TFN
Abbreviation for tax file number – www.ato.gov.au
Total and Permanent Disablement (TPD)
Pays a lump sum benefit in the event that you are totally and permanently disabled as defined by your insurer.
Trauma Insurance
Pays a lump sum benefit in the event that you suffer a trauma event such as a heart attack, or cancer as defined by your insurer.
Trustee
The legal owner of trust property. A Trustee maybe a company or one or more individuals.
Underwriter
An insurance professional who determines the level of risk associated with a proposal and determines whether that risk will be accepted or not by the insurer.
Underwriting
The process whereby an underwriter determines and assesses risk.
Utmost Good Faith
An essential element of an insurance contract where the insured and the insurer enter into a contract where each party has an obligation to act with the best intentions towards the other.
Waiting Period
The first part of a period of disability, for which no benefit is payable (commonly 14, 30, 60 or 90 days but can be up to 2 years).
Whole of Life Policy
A policy which provides a benefit at 95 or death of the insured whichever is prior.
Will
A will is a legal declaration by which a person, the testator, names one or more persons to manage their estate and provides for the transfer of their property at death.