10 Common life insurance jargons explained

 If you are buying life insurance for the first time, the influx of information might leave you confused. While you can get guidance from a financial consultant when selecting plans, it is also good to improve your own understanding of the product you are buying. To build on your understanding, read up on the plan you are buying by going through the plan’s brochure and fine print.

Now, you may come across a lot of life insurance jargons that may leave you a bit perplexed. To help you out, we have listed down some common life insurance jargons and explained what they mean.

 

1.    Whole life insurance

Whole life insurance covers the insured individual for their entire life against death, terminal illness, critical illness, and total permanent disability.

2.    Term life insurance

Term life insurance covers the insured individual for a duration selected by them against death, terminal illness, and total permanent disability. You can also add coverage for critical illnesses as a supplementary benefit.

3.    Sum assured

The sum assured is the amount that will get paid out to the plan’s beneficiary if a claim is raised.

4.    Premium

A premium is the cost of your life insurance policy. You may pay your premiums on a regular basis (monthly, quarterly, yearly) or as a single large lump sum amount – depending on the plan’s available premium payment options.

5.    Participating plans

Participating plans are a sub-type of whole life insurance. The participating plan gives guaranteed and non-guaranteed returns. The guaranteed returns refer to the plan’s sum assured that gets paid as a claim. The non-guaranteed portion refers to dividends that may be earned if the insurer’s fund performs well. You can find out how participating funds work here.

6.    Non-participating plans

Non-participating plans are another sub-type of whole life insurance. These plans do not carry any non-guaranteed returns like bonuses or dividends.

7.    Age next birthday

As the term suggests, ‘age next birthday’ simply refers to your age when celebrating your next birthday. In life insurance, your age plays an important role in determining premium value. Premiums are calculated as of ‘age next birthday’. This means that if you are presently 25 years old, you will pay the premium due for a 26 year old.    

8.    Cash value

Whole life insurance plans accumulate cash value from the premiums. This cash value is paid to the insured individual if they choose to terminate their coverage early. However, check with your financial consultant on the details of the payout as the actual value depends on when you terminate your plan too.

9.    Nominee

The nominee of your life insurance plan is the person who will get the payout when a claim is made. You may nominate anyone you want to. People most commonly nominate immediate family members such as a spouse, their parents or children.

10. Rider

A rider (or supplementary benefit) is an add-on benefit that serves to enhance the coverage of your life insurance plan. You can use a rider to customise your coverage to suit your needs. For instance, you may add a rider that waives your life insurance premiums if you are diagnosed with certain early or intermediate stage health conditions.

With a bit of research, some guidance from a financial consultant, and careful planning, you should be able to buy life insurance in Singapore with ease.

Take care.