Decoding life insurance lingo is key to getting the cover that’s right for you

Decoding life insurance lingo is key to getting the cover that’s right for you
Jessica Beattie, Acting Chief Marketing Officer at Bidvest Life

Many people find life insurance daunting because they don’t understand the terminology. What is a waiting period? And an exclusion? What is the difference between life income and life lump sum benefits? Does life insurance only pay out when you pass away? All of these are common – and important – questions.

Jessica Beattie, Acting Chief Marketing Officer at Bidvest Life, says that knowing what these terms mean will help to take the fear factor out of life insurance and put you in a better position to work with your financial adviser when selecting the cover that’s right for your real needs and risks.

This Financial Literacy Month, Beattie unlocks the language of life insurance:

  1. Life insurance: This is an umbrella term for a portfolio of products that offer protection against illness, injury and disability, loss of income as a result of you being unable to work, and the insurance that pays out to your beneficiaries when you pass away.
  2. Income protection: This is insurance for your income. It helps to cover your monthly expenses like insurance policies, medical aid, household costs and school fees, by paying up to 100% of your insured income when you’re not able to earn due to illness, injury, disability or death. Income protection should be the number one priority for every working South African.
  3. Waiting period: When it comes to income protection, a waiting period is the number of days you must be sick or unable to work before you can claim. For example, if you choose a waiting period of 30 days and your illness lasts for 21 days, you won’t be able to claim. According to Bidvest Life’s 2022 Claims Report, the leading cause of non-payment for income protection claims is that their clients tried to claim while still within their waiting periods.1
  4. Exclusion: An exclusion is something that is specifically not covered by your insurance policy, and for which you will not be able to claim. Certain benefits may be excluded from your policy due to you having a pre-existing condition, for example. If you have a heart condition when you take out your policy, the benefits for heart attacks might be excluded.
  5. Lump sum payout and life income benefit: Traditionally, life insurance policies pay out a lump sum when you pass away. But the challenge with lump sum payouts is that they’re difficult to plan for, and carry investment, inflationary, and behavioural risks. Life income benefits, on the other hand, pay a monthly amount to your beneficiaries when you pass away. Life income benefits are much easier to understand, prepare for, and manage because they mimic the monthly income stream you are trying to replace. Typically, they’re also more affordable.
  6. Benefit term: This is the maximum length of time you can claim for, and there are generally options available for you to choose from. For example, on some temporary income protection policies, you can choose between a 3-, 6-, 12-, or 24-month benefit term.

“When it comes to life insurance, it’s important to understand what you’re signing up for. Your financial adviser can help you choose the best options to suit your pocket and your needs, so that not only do you have the right life insurance in place, but you understand the fundamentals of how your cover works and the terminology around it.  Having a financial adviser to guide you through this process could mean the difference between qualifying for a claim or not when you need it,” says Beattie.

1Bidvest Life 2022 Claims Report