Your Cheatsheet To Insurance Terms

Find yourself wondering what your agent meant when he uses certain technical terms to explain your insurance? To help you better understand insurance, we break down insurance jargons into easy to understand explanations in this article.

Note that while these insurance terms are not exclusive to a term insurance, this article will focus on the terms that are commonly found in a term insurance plan.

1. What is Total Permanent Disability (TPD)?

Total Permanent Disability (TPD) is a benefit that can usually be found within a life insurance plan. Not to be mistaken for disability coverage, pay-out for TPD is only given when an individual is found to be permanently disabled with no chance of recovery.

Most term insurance plans will come with embedded coverage for TPD. If TPD coverage does not come included in your term plan, a TPD rider can be added to allow your plan to include coverage for TPD.

2. What does Policy Owner refer to?

Policy owner, also known as the policy holder, is the individual who owns and is paying for the policy. In most cases, the policy owner and the life insured will be the same person.

3. What does Life Insured refer to?

Life insured refers to the individuals whose life the policy is purchased on. This can both be the same individual as the policy owner or a different individual.

For example if a father buys a life insurance policy for his 5 year old daughter, the father is the policy owner of the plan whereas the daughter will be the life insured. Alternatively if the father buys a life insurance policy for himself, he will be both the policy owner and life insured of the plan.

4. What does Sum Assured refer to?

Sum assured refers to the amount that you are covered for. For example if you purchased a term life plan with a sum assured of $1 million, you will then be covered for $1 million. In the event that you fulfill the pay-out conditions such as death or Total Permanent Disability (TPD), you or your dependents will receive a financial compensation of $1 million according to the policy conditions.

5. What does Policy Term refer to?

Policy term refers to the duration of which your policy is in-force for. For example, a policy term of up to age 65 means that your policy is valid until the age of 65. From age 66 onwards, you will no longer be covered under the policy.

Term insurance usually have specified policy terms. This can range from one year (for yearly renewable plans) or for coverage of up to a maximum of age 100.

6. What are Regular Premium and Single Premium?

Premiums refer to the amount that you have to pay for your policy. There are two types of payments available: regular premiums and single premium.

Regular premiums refer to premiums that are made on a regular basis. This can be made on a monthly, quarterly, bi-annually or annually basis. Regular premiums must be made for as long as specified in your policy. For example, a term insurance plan is usually offered on a regular premium basis and must be paid for every year that the policy is in-force. This means that for a term plan with coverage up to age 65, you will have to pay premiums for every year up to the age of 65.

Single premiums refer to a one-off payment. This means you only make a payment once during the purchase of the policy and can then enjoy coverage for the entire duration of policy term. Single premiums are usually only available in whole life insurance, endowments, and annuity plans.

7. What are Riders?

Riders are optional add-ons to your existing life insurance policy. Adding riders to your insurance policy can further enhance your policy to offer more comprehensive coverage. Riders can enhance your life insurance policy to allow pay-outs to commence for a disability or critical illness claim.

8. What is a Premium Waiver?

A premium waiver benefit is usually offered as an add-on rider. With this benefit, future premium payments will be waived if certain conditions are met. Some of these conditions include but are not limited to when the policyholder becomes critically ill or physically disabled.

This benefit can also apply to an insurance plan that is bought by a parent for the child. In the event that the parent becomes critically ill or disabled, the future premiums of the child’s policy will be waived.

9. What is a Level Term?

A level term refers to a term insurance plan that provides coverage for a specified period of time. This may be for up to a specific age (e.g. up to age 65, 75, or 85) or for a fixed period of up to 40 years.

For level term plans, your premiums are locked in upon the purchase of the plan which means that you will be paying the same amount of premiums for the entire duration of your plan.

10. What is a Renewable and Convertible Term?

A renewable and convertible term refers to a term insurance plan that generally has a shorter coverage term. This coverage period ranges from just 1 year to a 5 or 10 year coverage. At the end of this coverage period, you may choose to renew your plan. These renewals are guaranteed insurability and you will not have to undergo any additional underwriting of medical tests.

While renewable term plans tend to start with lower upfront premiums, these premiums are not guaranteed and are likely to increase with age at each renewal.

(See "When is a renewable term insurance the better option?")

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