When choosing your life insurance policy you may come across a host of bewildering terms. The following brief glossary is intended to help you steer your way through some of the maze.
Critical illness cover
Either as an add-on to a term life insurance, or as a standalone insurance, critical illness cover will offer you and your dependents protection by paying out a lump sum (or occasionally a regular income for a pre-determined period) should you be diagnosed with a specified critical illness during the term of the policy.
Convertible term assurance
This is a type of life assurance that provides the policyholder the benefit of converting a normal, level term insurance to include a whole life, investment or endowment insurance element, which effectively provides a form of savings or investment that matures when the policy comes to term.
Decreasing term assurance
Over the course of the insurance term, the guaranteed sum assured steadily decreases. This type of insurance is traditionally used to cover the declining balance of outstanding repayments on a mortgage loan. Most lenders will insist that some form of life assurance is in place to protect their lending in the event of the borrower’s death.
Family income benefit
These insurance policies pay a regular – and tax free – fixed monthly or annual income to your family in the event of your death within the agreed term of the insurance. They are especially attractive to policy holders with young families and can be arranged as an add-on to a term life insurance or as a standalone insurance.
Guaranteed and reviewable premiums
Policies with these types of premium are just as they say on the label: the cost of premiums can either be guaranteed throughout the term of the policy (and are sometimes called level premium policies) or they can vary based on claims experience and changing market trends.
This type of insurance covers payment of a proportion of your salary for a given time if you are temporarily unable to work because of sickness or injury. The length of time payments are receivable depends on the policy term – commonly two years, or up to age 60 or 65.
Increasing term assurance
This is a convenient way to compensate for the adverse effects of inflation over the term of the insurance by providing for an increasing value in the sum assured.
Index-linking allows both premiums and the sum assured to be increased in line with the Retail Price Index.
Level term assurance
This is the simplest, most straight forward, no-frills life insurance. You pay the agreed premium and the insurer in return agrees to pay a fixed, guaranteed lump sum if at any time you should die during the term of the insurance.
Mortgage protection assurance
This is a form of life assurance intended to ensure that your mortgage is fully paid off in the event that you died before you had had the opportunity to pay it off.
Renewable term assurance
This arrangement gives the policy holder an option to renew the insurance at its expiry date and continue without having to provide a medical report.
Terminal illness benefit
As the name suggests, payment is made in the event that the policy holder is diagnosed with a terminal illness within the term of the insurance (insurers usually limit this benefit to the last 12 to 18 months of the policy).
Total and permanent disability
Similarly, total and permanent disability cover offers protection in the form of a lump sum (or occasionally regular monthly) payment if the policy holder suffers a total and permanent disability during the term of the insurance.
A trust is a way of putting something valuable (in this case your life insurance policy) aside to ensure the money goes to the people you want it to when you die. If the policy isn't owned under trust it automatically becomes part of your estate, thus increasing its exposure to inheritance tax. Putting the policy in the name of a trust can help to avoid inheritance tax.
Waiver of premium
This can be offered as an optional policy cover that provides continued life insurance coverage without further premium payments if the policy holder becomes unable to meet their premiums due to injury, sickness or unemployment.
Terminal illness cover
This type of cover also pays out if you are diagnosed with a terminal illness (terminal illness benefit does not typically apply in the last 18 months of the policy, and life expectancy must typically be less than 12 months).
Interchangeable with life insurance. Life cover that provides a guarantee or promise of cover in the case of certain event that will happen - typically death.
Interchangeable with life assurance. Life cover that provides guarantee or promise of cover in the case of certain event that might happen during the term of the policy - typically death.
Death in service
Lump sum cover provided by an employer in the event of an employee's death while in employment. Typically a multiple of salary e.g. 4x salary.
Whole of life
Whole life insurance is the most common variety of permanent life assurance, providing a guaranteed amount of death benefit and a guaranteed return on cash values. Premiums are also fixed and guaranteed not to increase.
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