Essential Life Insurance Terminology

Long-term insurance can sometimes seem confusing, with its array of specialised terms and jargon. Here we demystify the glossary of terms commonly used in long-term insurance.

Long-Term Insurance
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.

Premium
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.

Policyholder
A policyholder and life insured are not always 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.

Beneficiary Nomination
A nominated beneficiary is the person or entity designated by the policyholder to receive the insurance benefits upon the life assured’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.

Death Benefit
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
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 some-times be accessed by the policyholder during their lifetime through policy loans or withdrawals.

Surrender Charge
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.

Claims
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.