Life Insurance Glossary and Jargon Buster

The insurance world is full of technical terms and industry jargon that might sound quite complicated. The world of life insurance is no exception.

 

It's really important if you’re considering taking out a policy that you understand what all the small print means. Without doing so, how could you ever feel completely comfortable with the decision you make?

 

Our life insurance glossary and FAQs are here to help you decode the terms, making the world of life insurance a little bit simpler.

Premium

The agreed amount that you pay for an insurance policy. This might be on an annual or monthly basis

Premium protection / Waiver of Premium

This can typically be added to your policy at the start and means that your premiums will still be paid, if for example you are unable to work for more than six months.  It does generally cost more and you may need to be under a certain age to qualify. 

Guaranteed Premium

A guaranteed premium means that your monthly payments are fixed throughout the policy.

Sum assured

This is the maximum amount of money that will be paid out following a successful claim under your life insurance policy.

Accidental death benefit

Accidental death benefit is an extra cover that can be added to your policy so if you were to pass away as a result of an accident, your dependants could receive two payments – a life insurance payment and also an accidental death payment.

You may need to pay an additional premium for this cover, but some do add this automatically. Check the details before you buy to make sure you know what is covered if this is important to you.

Critical illness cover

Critical illness cover can be added to your policy or as a standalone policy on its own. It's designed to pay you a lump sum or a regular income for an agreed amount of time if you become ill with a critical illness. What constitutes a critical illness is detailed in the policy – it doesn't have to be fatal. Be sure to check the T&Cs.

Terminal illness cover

This will cover you if you are diagnosed with a terminal illness, where you have been given a diagnosis of less than 12 months to live. 

Level-term insurance

This policy will pay a fixed, named amount if you pass away at any time within the policy term. 

Decreasing term insurance

With this type of policy, the amount that the policy will pay out reduces over the term of the policy. It’s commonly used to cover a mortgage, where the amount of cover reduces as the outstanding balance of the mortgage reduces. This type of policy is usually cheaper than a level-term insurance policy.

Family income benefit policy

This type of policy will pay out a regular income to your dependants for the remaining term of the policy if you pass away before the end of it, and it should be tax free. 

Whole of life policy

There is no fixed term to this type of policy, it will pay out whenever you pass away. As there is a guaranteed pay-out, this kind of cover is usually more expensive. Be aware that there is sometimes an age limit to these policies. You may need to speak with a financial advisor if you think this is the right policy for you. 

Guaranteed acceptance

These are policies that will accept your application no matter what your medical history. 

Death in service

These policies are usually part of an employer's benefit scheme. They cover you if you were to pass away whilst you are employed with them. Sometimes, however, you’ll only be covered if you pass away at work or while on your way to or from work. There are some policies that pay double if you pass away in the course of duty so check the specifics of your cover with your employer. 

 

Inheritance tax

This is the tax that is paid on the estate left behind when somebody dies. The limit before inheritance tax is payable is currently £325,000. If the estate value exceeds this, 40% is payable to the taxman.

You could avoid this by putting your policy ‘in trust’ for your dependants – but you must do this at the time of taking out the policy. It means the pay-out goes directly to them rather than being included in the value of the estate. And if you have a joint policy, you’ll both have to agree to put the policy in trust.

Joint life

This is a joint cover where two people are covered by one policy. While it covers both of you, it only pays out when the first person passes away. So once that has happened, the surviving partner is no longer covered.

Hopefully this glossary will have helped make the technicalities around life insurance a bit clearer. A good way to get a sense of the different policies out there – what they do and don’t include is to start a life insurance quote and compare the prices and features.

Just click above to start and if you get stuck with the jargon, you know where to come to.