Life insurance jargon buster
If you have a family and financial responsibilities, you’ll likely want to take out a life insurance policy. A good life insurance policy can affordably provide you with peace of mind in life and your survivors with financial support after your death.
But even if you’re familiar with the basic premise of life insurance - premiums paid monthly for a lump sum payment or income following your death - you may find the process of seeking out a specific policy daunting. There are a range of life insurance products available, covering different eventualities and offering different levels and types of payout. But if you’re not familiar with the lingo used by insurers, these differences can be opaque. At worst, you can find yourself sold - and now paying premiums for - a policy that doesn’t suit your needs.
In general, the better informed about the insurance market you are, and the more policies you compare in your search, the more likely you are the find the right life insurance policy for your personal and financial needs.
The following glossary of the terms you might encounter in your life insurance search and types of policies can help demystify the process.
In This Guide:
- Critical illness cover
- Death in service benefit
- Decreasing term life insurance
- Existing medical conditions
- Family income benefit
- Guaranteed premiums
- Increasing term life insurance
- Index linking
- Investment-linked life insurance
- Joint life insurance
- Level term life insurance
- Life assurance
- Living benefit
- Mortgage life insurance
- Over 50s life insurance
- Renewable premiums
- Renewable term
- Sum insured
- Waiver of premium
- Whole of life insurance
A beneficiary is the person you designated to receive the sum insured if you die during the term of the policy. This is person usually your spouse or child. You can name multiple beneficiaries.
Critical illness cover
Critical illness cover offers you a financial payment, generally a tax-free lump sum, if you’re diagnosed with a serious illness or disabled by a serious injury during the term of the policy. These policies can be purchased on their own but are often sold in conjunction with life insurance policies, often for an additional charge on your monthly premiums.
Death in service benefit
Death in service benefit is a life insurance policy offered by an employer, paying a multiple of your salary to a designated beneficiary if you die while employed by the company.
Decreasing term life insurance
Decreasing term life insurance policies last a designated period of time and offer a payout that declines over their term, so your survivors will receive a larger sum if you die earlier in the term and a smaller sum later. They’re often linked to mortgages, so the payout covers the outstanding balance on your loan.
Existing medical conditions
When applying for insurance, you’ll need to disclose your medical history, including diagnoses with certain conditions. Certain existing medical conditions, such as diabetes or a history of heart attacks or cancer, can make it difficult for you to obtain life insurance, or at the least, inflate the premiums you pay. But failing to disclose these conditions can invalidate your policy and lead to the rejection of claims.
Family income benefit
Family income benefit is a type of coverage that delivers a fixed, tax-free monthly or annual income to your beneficiaries, rather than a lump sum, if you die during the policy term.
Guaranteed premiums remain fixed over the term of the policy, in contrast to renewable premiums.
Increasing term life insurance
Increasing term life insurance policies last a designated period of time and offer a payout that increases over their term, to offset the effect of inflation which could otherwise erode their value.
Index linking is a measure that allows your sum insured and your premiums to rise in line with the Retail Price Index (RPI), so inflation doesn’t devalue your policy.
Investment-linked life insurance
Investment-linked life insurance is a form of life assurance in which your monthly premium is split, with some going to a final lump sum payout and some being invested by your insurer. The value of your pay out will go up and down over the term, depending on how these investments perform, and you may have the option of cashing out the policy before you die. Also known as an endowment policy.
Joint life insurance
Joint life insurance is a policy shared between two people who share financial responsibilities, usually spouses, partners, or business partners. These policies typically payout to the surviving policyholder following the first death.
Level term life insurance
Level term life insurance policies last a specified period of time and pay a guaranteed, fixed lump sum if you die within that term
Life assurance is a life insurance policy that doesn’t expire but rather pays out a fixed sum whenever you die. It’s called assurance because the payout is guaranteed. Also called whole of life insurance.
Living benefit is packaged with a life insurance policy allowing the payout before death in certain circumstances, such as a diagnosis with a terminal illness.
Mortgage life insurance
Mortgage life insurance policies are decreasing term life insurance products linked to a mortgage, so the lump sum payout can be used to pay off the outstanding balance on a mortgage. Some mortgage lenders will require you take one of these policies as a condition of your loan.
A premium is the monthly payment you make to keep your life insurance valid. Failing to pay premiums can lead to the cancellation of your policy.
Over 50s life insurance
Over 50s life insurance policies are specialised insurance/assurance products for those between 50 and 85, with guaranteed acceptance, fixed payouts, and no expiry date. These policies are often used to cover funeral expenses.
Renewable premiums are reviewed at regular intervals and adjusted—usually upward as you age and as your insurer’s costs increase. Differ from guaranteed premiums.
A renewable term is a clause in a term life insurance policy that allows you to extend the term without having to reapply or prequalify for a policy, often with the payment of a renewal premium.
The sum insured is the value of your policy - the amount your family will receive if you die while the policy is active
The term is the length of time your policy runs for - usually 10, 20, or 25 years. Term life insurance policies are policies with an expiry date, after which you won’t be able to claim on them. They’re a cheaper alternative to whole of life policies and are often bought to sync up with your financial and personal commitments, ending after you’ve paid off your mortgage or your children have become adults.
Waiver of premium
A waiver of premium is a provision offered by some insurers that allows you to temporarily waive your premiums under certain circumstances, such as if ill health puts you out of work, while maintaining your policy.
Whole of life insurance
Whole of life insurance is a life assurance policy; a policy that lasts indefinitely and pays out a fixed, lump sum when you die.