Life Insurance Jargon Buster

Researching life insurance is fraught with terminology you need to understand before you consider any type of policy.

In this article life insurance providers Reassured have demystified many of the key terms you’ll come across and we encourage you to reference this glossary as often as you need to so you’re fully informed before choosing this type of finance product.

Life insurance

Life insurance is a type of policy that pays out a cash lump sum to loved ones if the policyholder passes away during the term of the policy.

The policyholder will pay the insurer a monthly premium throughout the term to secure cover.

Level term life insurance

This type of life insurance policy will pay a fixed cash lump sum to loved ones if the policyholder passes away during a specified term length.

Decreasing term

This type of life insurance policy will pay a cash lump sum to loved ones when the policyholder passes away during a specified term length, however the value of the sum assured (pay out sum) will decrease during the term.

Whole of life

A whole of life insurance policy provides protection for the whole of your life and guarantees to pay out a cash lump sum to loved ones when the policyholder passes away.

Over 50s life insurance

An over 50 life insurance policy, also known as an over 50s plan, that guarantees acceptance for people aged over 50 (and younger than 85) and offers a guaranteed pay out to your loved ones when you pass away.

This type of policy does not require applicants to disclose any medical information to the insurer.

Family income benefit

This type of policy provides your loved ones with a regular, fixed, tax free income for a set period of time after you pass away.

Joint life insurance

Also known as life insurance for couples, joint life insurance is when a term or whole of life policy is taken out for two people that covers them simultaneously.

The pay out is made upon the first death and the policy ends.

Critical illness cover

Critical illness cover (sometimes referred to as critical illness insurance) provides a tax-free lump sum pay out if you are diagnosed with a specified life-changing (but not terminal) illness, covered by your policy.

At Reassured, this can be taken out as an add on to a life insurance policy or as a standalone product.

Terminal illness cover

This type of cover usually comes as standard with any life insurance policy, at no additional cost.

It allows you to make an early claim on your policy if you’re diagnosed with a terminal illness and predicted to pass away within 12 months.

Impaired life insurance

An impaired risk applicant is identified by an insurer as a high-risk applicant who is more likely to make a claim on their life insurance policy.

Those who may be considered impaired may have pre-existing medical conditions, a dangerous job or hobby or have a particular lifestyle choice affecting their health, such as a smoker.

Funeral plan

A prepaid funeral plan allows you to pay for and arrange your own funeral in advance, so your loved ones don’t have to.

You pay either by lump sum or by monthly payments to a funeral plan provider. You are able to secure the cost of a funeral today, avoiding the rising cost of funerals.

Life insurance policy

A policy is a legal contract between a policy holder and an insurance provider in which states the terms, conditions and details of the agreement.

Policy holder

The written name of the person in which the life insurance policy protects.

Sum assured

The guaranteed pay out amount from an insurance policy. The sum assured (or cover amount) is calculated at the beginning of the policy.

Premiums

A sum paid monthly by the policyholder to remain covered by the life insurance policy.

Guaranteed premiums

A guaranteed premium remains fixed throughout the life insurance policy, (or until you pass away in the case of whole of life)

Reviewable premiums

A reviewable premium is reviewed by the insurer at regular intervals and the rate can be increased.

Underwriting

The underwriter of a life insurance provider will calculate the cost of life insurance premiums by using statistical analysis and mathematical equations based on the information the applicant provides.

Non-Disclosure

This means failing to provide the insurance company with all the correct information regarding your personal circumstances upon application.

If you do not make a full disclosure, then you may not be covered and your life insurance policy may not pay out.

Guaranteed acceptance

When an applicant is guaranteed acceptance for a life insurance policy or a funeral plan, then they will not need to provide any medical information to secure this type cover.

Life assurance

Life assurance is a type of policy that pays out a cash lump sum to loved ones when you pass away, (not if). An example being an over 50s plan.

The policyholder will pay the insurer a monthly premium throughout the policy for the cover to be effective.

Guaranteed Insurability Option

Also known as a special events clause or policy increase option, a guaranteed insurability option is when the details of a life insurance policy are changed by the policy holder due to a change in their personal circumstances.

FCA

Reassured, amongst many other life insurance providers, are regulated by the Financial Conduct Authority.

The FCA was created by Parliament to regulate the conduct of financial services in the UK. The FCA ‘aim to make financial markets work well so that consumers get a fair deal’.

Waiting period (qualifying period)

An over 50s plan, or over 50s insurance, have a waiting period or qualifying period (typically 12 or 24 months) from the start date of the policy.

During this period of time, if the policy holder dies of natural causes then a pay out will not be issued. If the policy holder dies as a result of an accident, then their death will be covered by the policy.

Trust

A life insurance policy can be written in trust by the policy holder so that they have more control over how the proceeds are spent.

Upon their death, the trust is handed over to the trustee who takes care of the claim and manages the pay-out (on behalf of the beneficiaries) as per their wishes.

Beneficiaries

The beneficiary (or beneficiaries) of a life insurance policy written in trust is the individual who benefits from the pay out from the policy (and is nominated by the settlor).

Settlor

The policy holder (owner) of the life insurance policy that is written in trust.

Estate

Any financial asset owned by the policy holder that passes away, such as their property.

Trustee

The trusted individual (nominated by the settlor) who manages the policy once the policy holder passes away, including distributing the funds as per their wishes (on behalf of the beneficiaries)

Probate

Probate is the legal process of which confirms that your executors are in the position to administer your estate to your beneficiaries.

Probate does not need to be granted if a life insurance policy is written in trust (as it is not considered as part of the estate).

Inheritance tax

“Inheritance tax is a tax on the estate (the property, money and possessions) of someone who’s died”.

For an individual in the UK after your estate exceeds £325,000 you are taxed at 40%! Although this threshold may seem a lot, it includes you property, savings, possessions and proceeds from your life insurance.

Visit https://www.gov.uk/inheritance-tax for more information.

Will

A will is written by someone before they pass away to determine what should happen to their estate after their death.

Sources:
https://www.reassured.co.uk/
https://www.moneyadviceservice.org.uk
https://www.gov.uk/inheritance-tax