Insurance Lingo You Need to Know

Let’s face it — insurance isn’t exactly the most easy-to-understand topic, but it plays a quiet hero in your financial game plan. Getting an insurance policy, while necessary to protect yourself and your loved ones, requires a financial commitment. 

We spoke with Mika Calixterio from AIA Philippines to help break down the top insurance terms that often cause confusion. So, the next time you sit down with a financial advisor or evaluate different policy options, you’ll know exactly what you’re looking at. 

To make things clearer, let's walk through these terms with John as an example:

Beneficiary/ies

Mika captures this simply: Your beneficiary is the person/s who will receive the proceeds of your life insurance policy. Think of them as the people who depend on you for financial support, they could be your spouse, children, parents, or siblings.

🖼️Scenario: Anna is listed as John’s beneficiary. If something happens to John, Anna will receive the life insurance money.

Face Amount

This is the amount of money that you are insured for, and how much your beneficiary will receive.

🖼️Scenario: John’s life insurance has a face amount of ₱2 million. If he passes away, that’s how much his family will receive.

Rider/s 

You can add extra features to your insurance for added protection. Mika specifies the additional benefits you can include, such as medical coverage, reimbursement of medical expenses, waiving any premiums or payments moving forward should you be severely injured, etc.

🖼️ Scenario: John adds a rider that covers hospital bills. When he gets confined, the policy helps pay for the expenses. He also adds another rider that waives all future payments if he gets critically ill, so he can focus on recovery instead without worrying about policy payments.

Revocable vs. Irrevocable Beneficiaries

These are two kinds of beneficiaries:

• Revocable means you can change the person anytime without asking them.
• Irrevocable means you need their permission to make any changes.

🖼️ Scenario: If John lists her sister as an irrevocable beneficiary, he can't remove her later without her sister's agreement.

Claim

This is when you officially notify the insurance company that you need to use your policy, whether for a medical expense, accident, or if the policyholder has passed away. After checking the validity of claims, the insurance company then releases the payment.

🖼️ Scenario: If John passes away, his wife can file a claim to receive the benefit as his beneficiary.

Premium

Simply, this is the amount you pay to keep your insurance active. Think of it as a regular fee in exchange for the protection the policy gives you. You’ll be given several payment options. Some insurance companies allow you to pay in monthly or quarterly installments, while others may require full payment before the coverage begins.

🖼️ Scenario: When John signs up for life insurance, he’s informed that his premium is ₱2,000 per month. As long as he pays it, he stays covered. If he stops paying, his policy might get cancelled.

Contestability Period

This period is the short window (usually the first 1-2 years after your policy starts) wherein the insurance company will investigate and deny a claim if it finds misrepresentations in the application.

After this period is over, it’s much harder for the insurer to question your claim unless there was clear fraud.

🖼️ Scenario: If John passes away a year after getting his policy, the insurance company can look into his records. If they discover he didn’t mention a serious illness when he applied, they might deny the payout even if his death wasn’t related to that illness.

Term Life Insurance

A type of insurance that covers you for a set number of years, ranging from 5 to 30 years and is considerably the most affordable insurance option. If you pass away during that time, your family gets the benefit. If you outlive the term and the policy reaches its maturity date (expiration), you’ll need to renew to stay covered.

🖼️ Scenario: John gets a 20-year term life insurance. If he passes away within 20 years, his family will receive the payout. If not, he’ll need to renew, at a higher cost, to stay covered.

Variable Universal Life Insurance (VUL)

Provides you with insurance coverage and investment. A portion of your payment goes into funds that could grow and earn over time. Mika shares that the profits/losses of the company can also impact the policy's fund value.

🖼️ Scenario: John buys a VUL policy. Part of his payments are invested, so the fund value can go up or down depending on market performance, but he remains covered for life.

Whole Life Insurance

This covers you for your entire life and builds cash value that you can borrow or withdraw if you cancel the policy. It’s stable and predictable, with fixed premiums, and is usually the most expensive option.

🖼️ Scenario: John has a whole life policy that covers him for life. Over the years, his policy has grown in value. But after 4 years, he decides to cancel it. He can now cash out the accumulated value.

Mika shares a piece of advice to carry with you during your hunt for the right insurance policy: "Don’t hesitate to ask your financial advisor questions. They’re there to guide you. There are different products for different needs, so feel free to request multiple proposals to find the right fit for you."

Read more financial tips at NEXT by BPI Preferred’s The Program.