A guide to the jargon of wealth protection

 

Assured

A person or persons who are insured under the terms of a protection policy.

Convertible Term Assurance

A term assurance plan that gives the owner the option to convert the policy to a whole-of-life contract or endowment without the need for medical checks.

Critical Illness Cover

Critical illness cover is an insurance plan that pays out a guaranteed tax-free cash sum if you’re diagnosed as suffering from a specified critical illness covered by the plan. There is no payment if you die. You can take out the plan on your own or with someone else. For joint policies, the cash sum is normally payable only once, on the first claim.

Decreasing-Term Assurance

A term assurance plan designed to reduce its cover each year, decreasing to nil at the end of term.

Decreasing-term assurance

cover is most commonly used to cover a reducing debt or repayment mortgage.

Deferred Period

A period of delay prior to payment of benefits under a protection policy. Periods are normally 4, 13, 26 or 52 weeks – the longer the period, the cheaper the premium.

Family Income Benefit

A term assurance policy that pays regular benefits on death to the end of the plan term.

Guaranteed Premiums

This means the premiums are guaranteed to remain the same for the duration of the plan, unless you increase the amount of cover via ‘indexation’.

Income Protection

This insurance provides you with a regular tax-free income if, by reason of sickness or accident, you are unable to work, resulting in a loss of earnings. Income protection is also known as permanent health insurance (PHI).

Indexation

You can arrange for your insurance benefit and premiums to increase annually in line with inflation or at a fixed percentage. Premiums are normally increased in line with RPI (Retail Prices Index) or NAEI (National Average Earnings Index).

Inheritance Tax

Not everyone pays inheritance tax. It’s only due if your estate – including any assets held in trust and gifts made within seven years of death – is valued over the current inheritance tax threshold (£325,000 in 2014/15). Married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies – to as much as £650,000. The tax is payable at 40% on the amount over this threshold or 36% if the estate qualifies for a reduced rate as a result of a charitable donation.

Insurable Interest

A legally recognised interest enabling a person to insure another. The insured must be financially worse off on the death of the life assured.

Joint-Life Second Death

A policy that will pay out only when the last survivor of a joint life policy dies.

Key Person (Key Man) Insurance

Insurance against the death or disability of a person who is vital to the profitability of a business.

Level-Term Assurance

A life assurance policy that pays out a fixed sum on the death of the life assured within the plan term. No surrender value is accumulated.

Life Assured

The person whose life is insured against death under the terms of a policy.

Life Insurance

An insurance plan that pays out a guaranteed cash sum if you die during the term of the plan. Some term assurance plans also pay out if you are diagnosed as suffering from a terminal illness. You can take out the plan on your own or with someone else. For joint-life insurance policies, the cash sum is normally payable only once, on the first claim.

Long-term Care

Insurance to cover the cost of caring for an individual who cannot perform a number of activities of daily living, such as dressing or washing.

Mortgage Protection

‘Mortgage life assurance’ or ‘repayment mortgage protection’ is an insurance plan to cover your whole repayment mortgage, or just part of it. The policy pays out a cash sum to meet the reducing liability of a repayment mortgage. You can take out the policy on your own or with someone else. For joint policies, the cash sum is normally payable only once, on the first claim.

Paid-up Plan

A policy where contributions have ceased and any benefits accumulated are preserved.

Permanent Health Insurance

Cover that provides a regular income until retirement should you be unable to work due to illness or disability. Also known as Income Protection.

Renewable Term Assurance

An ordinary term assurance policy with the option to renew the plan at expiry without the need for further medical evidence.

Reviewable Premiums

Plans with reviewable premiums are usually cheaper initially; however, the premiums are reviewed regularly and can increase substantially.

Surrender Value

The value of a life policy if it is encashed before a claim due to death or maturity.

Sum Assured

The benefit payable under a life assurance policy.

Term Assurance

A life assurance policy that pays out a lump sum on the death of the life assured within the term of the plan.

Terminal Illness

Some life policies include this benefit free of charge, and this means the life insurance benefit will be paid early if you suffer a terminal illness.

Total Permanent Disability Cover

Also known as permanent health insurance or income protection, and sometimes available as part of a life assurance policy, this pays out the benefit of a policy if you are unable to work due to illness or disability.

Trusts

Many insurance companies supply trust documents when arranging your policy. Placing your policy in an appropriate trust usually speeds up the payment of proceeds to your beneficiaries and may also assist with inheritance tax mitigation.

Waiver of Premium

If you are unable to work through illness or accident for a number of months, this option ensures that your cover continues without you having to pay the policy premiums.

Whole-Of-Life

Unlike term assurance, whole-of-life policies provide life assurance protection for the life of the assured individual(s). Cover may either be provided for a fixed sum assured on premium terms established at the outset or flexible terms which permit increases in cover once the policy is in force, within certain pre-set limits, to reflect changing personal circumstances.