Plenty of terms get thrown around in the world of protection insurance, but what do they all mean? This glossary breaks down the meaning behind some of the most used words in the insurance industry and makes sure you know what you might be signing up to.
Beneficiary. If you have life insurance and die unexpectedly, a tax-free lump sum will be paid out to the person of your choice. This person is called a “beneficiary”. In most cases, people pick their partner or children.
Critical illness cover. Provides cover if you get a specific type of life changing condition.
Death in service benefit. If you are employed, your work contract might include a “death in service benefit”. This means your employer will pay out a multiple of your salary to your beneficiary, if you die unexpectedly.
Existing medical conditions. Any existing or previous medical conditions which you have (or had in the past) when you take out your insurance policy.
Financial adviser. A financial adviser is someone who will speak to insurance companies on your behalf. Their expert knowledge means they should be able to find the best policy for your circumstances.
Income protection insurance. Designed to support you financially if you can’t work due to illness or injury and your income drops. Particularly relevant for anyone self-employed who wouldn’t get sick pay.
Insurance broker. Market experts who may be able to help you find the best insurance product for you at a good price.
Joint life insurance. Some couples choose to take out a joint life insurance policy. This can result in cheaper monthly payments, but will only pay out once. So if one person dies unexpectedly the surviving partner would no longer be covered.
Life insurance. A policy which will pay your dependants a lump sum or regular payments if you die unexpectedly.
Mortgage protection insurance. A type of term life insurance where the level of cover decreases over the term of the policy. It is mainly used to cover mortgage repayments if you die unexpectedly.
Payment protection insurance. Supports you if illness or redundancy means you can’t meet regular payments of your debts.
Premium. Insurance policies are usually paid for in monthly payments called premiums. For example, you might pay £5 per month for your life insurance policy.
Term. The term of an insurance policy is the amount of time it lasts. Terms can range from just a few years, to the duration of your mortgage payments.
Term life insurance. There are two main types of term life insurance: level term and decreasing term. Decreasing term insurance is often used to cover large debts, e.g. mortgages, where the outstanding amount decreases over time, as you pay it back. Increasing term is the opposite: the value increases over the life of the policy. Level term insurance will cover you for a set amount, over a specific period of time of time, such as 10 or 25 years.
Short-term income protection insurance. This type of policy pays a monthly sum, for a set period of time, if you lose your source of income due to illness, injury or redundancy.
Sum insured. The amount of money your insurance company will pay out. For example, if you die unexpectedly five years into a 20 year life insurance policy, your company will pay a pre-agreed sum to your beneficiary.
Waiver of premium. If you are too ill to work and can’t afford your monthly premiums, a waiver of premium option means you would still be covered. Not all insurance policies offer this, so make sure you ask.
Whole of life insurance. A type of life insurance which covers you for the rest of your life, not a set term. It is usually more expensive than fixed term insurance as a payment is guaranteed.
Workplace benefits. If you are employed, you might find you have some workplace benefits, such as private medical insurance, sick pay or type of life insurance, sometimes called ‘death in service’.
This article is provided by the Money Advice Service.
