This week, we continue in our quest for glorious knowledge. Whether you are an industry veteran or a Life Insurance noob, you will never go wrong by keeping the basics close to your heart.
If you haven’t done so already, check out the first part of this article:
Continuing from our previous list of 10 words, here are the rest that make your insurance vocabulary all the more complete.
Nothing to do with short, small guys atop horses. A rider is an additional policy that is only available for purchase when its main plan is taken up. A rider needs to be purchased with another plan, but a stand alone plan does not.
An example of a rider would be an Critical Illness Rider that is purchased together with a Whole Life Plan (we will talk about that later).
Use it like a pro: I was comparing Term plans between different insurers and discovered that price should not be the only factor. One of them lets me add up to 3 different riders, covering early stage critical illness, accidental death, and even female related illnesses. Talk about flexibility!
Use it like a klutz: I disagree with the whole concept of riders. They should be the most important part of an insurance policy, just like how the jockey is the one that steers and guides the horse to victory. Life Insurance is weird.
12. Term Plan
If you recall, Term has 2 meanings when applied in an insurance context. Other than referring to a period of time, it also refers to a classic type of Insurance plan, where the tenure is fixed.
A Term plan provides a fixed amount of cover (sum assured) for a pre-specified amount of time. It is the bed-rock of the life insurance industry, the foundation upon which all other plans are built.
Use it like a pro: Susan bought a Term plan and seems pretty pleased about it. It covers her till her retirement age of 70, after which she doesn’t need the financial protection all that much. I’m thinking of doing the same.
Use it like a klutz: Looking at the state of the stock markets recently, I think the best Term plan for now is to wait and see until a clearer trend forms.
13. Whole Life Plan
An Insurance plan that provides cover for the Whole of a person’s life, typically till age 99 and beyond. Contrast this with Term plans, which has a fixed coverage period.
A Whole Life Plan typically amasses cash value, as it is a participating policy. Limited pay options are also popular when it comes to Whole Life Plans.
Use it like a pro: Even though it can be a bit more pricey, I still think that a small Whole Life Plan has a place in my financial portfolio. It at least gives me assurance that I will forever be covered with an amount that is likely to grow in the future.
Use it like a klutz: My agent says this plan is simply the best! It covers me for death, disability, critical illness, accidents, and even retrenchment. My whole financial life is properly covered once I take this up, and it is a great Whole Life Plan.
14. Product Summary
A document that provides a short description of the benefits of the plan. It is usually provided along with the benefit illustration (which focuses more on numbers).
A product summary tells you what is covered and what is not, along with the conditions.
Use it like a pro: I’ve learnt how to read my product summary properly and it contains a truck-load of useful information pertaining to my policy. Some say it actually is more important than the benefit illustration, because numbers are meaningless without the context to back them up.
Use it like a klutz: After going to Sheng Siong, i did a Product Summary and found that I missed out buying the Korean instant noodles again. Sigh, now I have to starve till dinner time.
Amount that you have to pay upfront first, before being able to claim against a policy. Most frequently encountered under shield plans, if you do not purchase the relevant rider that covers you for deductibles.
If a deductible is 3,000 and your hospital bill is 10,000 – then you have to pay the first 3k out of your own pocket. The rest are considered “claimable” under the policy. The deductible however, is not.
Use it like a pro: Weighing the pros and the cons of buying a rider to take care of my deductible, I’ve decided that that it is the right choice to make. It may cost me a few hundred dollars each year, but at least I know 100% of my hospital bills will be taken care of, regardless of the severity.
Use it like a klutz: I was walking past forever21 and saw they were having a grand sale, over 30% of the regular price. I immediately went in to take advantage of this deductible and picked out several cute tops for myself.
Percentage of the claimable bill that you have to pay alongside the insurer. It is the second component that you have to take care of in a hospitalization bill (first is the deductible), if you did not purchase the relevant rider to take care of this portion.
Using the previous example, if the co-insurance portion is 10%, means that you have to fork out 700 dollars (10% of 7,000) while the insurance company pays the remaining 6,300.
Use it like pro: I feel a little silly not upgrading my shield plan to the max. My throat operation cost well over 30 thousand dollars, and I ended up shelling out around 2,700 in co-insurance. All this just to avoid a rider that cost me a few hundreds.
Use it like a klutz: I love innovation these days. There are these cute little start ups with no insurance knowledge but a sexy idea offering co-insurance. They cover me, I cover them. Insurtech is great!
17. Endowment Plan
A type of insurance plan that focuses mainly on providing returns (as opposed to protection). Commonly called savings plan as well. Endowment plans are for those that want a potentially higher return over the short to medium term time span without undue risk.
They can be participating or non-par, single or regular premium.
Use it like a pro: For Jane’s tertiary education, I took care of it years ago by buying her a 15 year endowment plan. It will be maturing next year, just in time for when she enrolls into NUS.
Use it like a klutz: Have you seen the size of Joanne Peh’s “assets” recently? I don’t know what kind of endowment plan she is on, but it seems to be working wonders.
18. Investment Linked Plan
A type of insurance plan that combines both insurance with investment. There is an option for the policy holder to adjust the proportion of premiums that go into protection vs investment.
The investment portion can be chosen among the different funds offered by the insurer, and the returns (or losses) are fully accrued to the policy, less any management and sales expenses.
Use it like a pro: I can see the superficial argument about Investment linked plans providing superior flexibility and superior returns, but if I wanted to invest on my own, I would consider far cheaper options that do not sap my returns as much.
Use it like a klutz: Far East Organization seems to be snapping up land like it was free, their investment linked plan behind this might actually be selling to the next stupid buyer. After all, property is a no lose proposition in Singapore, right?
19. Early Critical Illness
The stage at which Critical Illness is diagnosed, which is in the starting phase (hence early), as opposed to the later stages.
Early (Stage) Critical Illness plans have proliferated the market in recent years, in part due to the advancement of medical technology at diagnosis and detection, making complete recoveries far more likely.
If not stated, then usually Critical Illness cover refers to the late stage.
Use it like a pro: Though I bought my plans some years ago, it may be a good idea to refresh them. There are so many plans today that lets me get Early Critical illness cover- no reason why I should leave that particular gap unfilled.
Use it like a klutz: I am heading to the polyclinic at 8 am today for my check up, so hopefully any diagnosis I receive will be an Early Critical illness – and hence I fancy my chances for recovery!
20. Level Sum Assured
A Sum Assured amount that does not change over time. ie. It remains level. This is to contrast against plans whose Sum Assured may be increasing or decreasing over time.
Level Sum Assured plans are typically non par plans which focus purely on protection and without any returns element (so the Sum Assured stays constant).
Use it like a pro: After taking my mortgage loan, I used a regular Term plan to cover my liability. Even though it has a Level Sum Assured, the price is not much higher compared to the Decreasing Sum Assured version.
Use it like a klutz: As I age, I feel the need to increase my insurance cover amount by upping the level of Sum Assured. The higher the level, the better the cover!
There you have it. 20 Terms that ought to go a long way in getting you well acquainted to the lingo which is Life Insurance. We hope that this series has helped to keep you up to speed in some of the most commonly used terms when it comes to insurance policies – and spark your desire to know even more in the future!
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.