This jargon busting document aims to remove some of the complexity that has become part of life insurance products and contracts. Although the benefits of South Africa’s sophisticated and often unique life insurance products are undisputable, their design has in many instances become too technical. This jargon buster was thus driven by a clear need to have a simple consistent reference resource.
Aimed at both intermediaries and consumers, the jargon buster was produced in a joint venture by the life industry’s medical insurance professionals, supported by the Association for Saving and Investment SA (ASISA), to simplify many of the terms used to describe life insurance products.
In certain instances, some of the content may still appear a little too technical. Where this has happened, it was necessitated by the need for legal and technical accuracy.
However, overall this document goes a long way in attempting, for the first time, to enable the consumer and intermediary to reference in simple language the jargon in contracts and the reasoning behind certain approaches.
This section is a live resource that will be updated and edited on a regular basis to ensure that it is always up to date and relevant.
This section aims to explain terminology most commonly used by life insurance companies in their product brochures, application forms, quotations and contracts.
Terminology in italics is also covered in the glossary, but in a more concise manner.
Please note that the meaning of some of the terms defined below may differ when used in the context of short-term insurance or insurance products from other countries. While every effort has been made to offer comprehensive explanations of the various terms, some local life insurance companies may apply different interpretations of the terms. It is therefore important to always consider the definitions offered by the company from which you are buying a life insurance product.
ACCELERATOR RIDER BENEFITS VERSUS STAND-ALONE BENEFITS
When life insurance was first developed, companies only covered one event, namely the death of the policyholder. However, as the industry evolved life insurance companies started adding other benefits to the range of products on offer. Termed accelerator rider benefits, these benefits were designed to accelerate(reduce) the death benefit or any other benefit it was linked to. Examples include dread disease and lump sum disability benefits.
If, for example, you were insured for a death benefit of R500 000 and a rider benefit of R400 000, a claim under the rider benefit would reduce the value of the death benefit to R100 000 (R400 000 less R500 000). The same would apply where, say, dread disease and a disability benefit were linked to each other.
A growing consumer demand for benefits available independently of life cover led to the introduction of stand-alone rider benefits. A stand-alone benefit can be sold in conjunction with a death benefit, but it can also be sold separately.
Stand-alone benefits will always be more expensive than accelerator rider benefits since the life insurance company is likely to pay out more if the policyholder claims.
Using the previous example, if the rider benefit had been stand-alone cover, you could claim for R400 000 under the rider benefit and retain the R500 000 life cover. This means the life insurance company may end up paying claims worth R900 000, instead of the maximum R500 000.
REINSTATEMENT OF COVER
This section does not refer to a reinstatement of a contract that has lapsed due to non-payment.
Reinstatement of cover can be complex, and practices vary from company to company. It is therefore important that you consult the relevant product guide when choosing a product. The reinstatement option generally only applies to policies offering dread disease benefits.
Where a reinstatement option was purchased with an accelerator policy, the life cover will to revert to the level enjoyed before a claim was made against the dread disease or disability rider benefit. However, this reinstatement option usually only kicks in after the insured has survived for a period (typically 6 months) from when the claim was made, or in the case of dread disease cover, since the condition or disease was diagnosed.
The reinstatement cover comes at an additional cost but is still cheaper than if you opt for stand-alone cover. The benefit of stand-alone cover is that should the policyholder die within the six months since a disability or dread disease claim was made, the full death benefit would automatically be payable. The choice of whether to have a reinstatement of life cover option needs to be made at the outset of the policy.
DREAD DISEASE COVER
Generally, once the policyholder has claimed the full benefit under a specific dread disease condition the benefit falls away and no further benefit is available for payment.
However, some products allow you to reinstate cover under a dread disease policy. Generally, this would then allow the policyholder to claim for other conditions or groups of conditions not claimed for previously. Generally, further claims under the same condition (or group of conditions) would be excluded. For example, if you had claimed for a heart attack, you would not be allowed to claim again for heart-related conditions but would be allowed to claim for a later diagnosis of cancer.
Dread disease products which offer different benefit payments based on different severity levels of the condition have been ignored in the example above. These products may, however, also have a reinstatement option. Where this is the case further payments would be allowed under the original condition (given that the condition worsened). The exact workings of reinstatement under these products are more complex and practices vary between companies. It is therefore important that you consult the relevant product guide.