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Life Insurance Glossary
We realise that life insurance can be confusing. By clicking on the links below we can help demystify the wonderful jargon our industry uses!
Accident Cover
Assurance
ASU
Beneficiary
Critical Illness
Family Income Benefit
Guaranteed Premium
Indexation
Inheritance Tax
Insurance
Level Term Life Insurance
Mortgage Decreasing Life Insurance
Pension Term
Reviewable Premium
Settlor
Sickness Cover
Tax Relief
Term
Terminal Illness
Trustee
Trusts
Unemployment Cover
Waiver of Premium
Whole of Life
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Accident Cover
You can insure your income using an accident, sickness and unemployment policy. This will provide up to 12 months of income for you should be unable to work following an accident. Please see our Other Products page for further details.
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Assurance
'Assurance' is simply another word for 'insurance' when used in the context of a life policy. The terms are interchangeable.
You can read the dictionary definition of insurance by clicking here.
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ASU
ASU stands for Accident, Sickness and Unemployment cover. This insurance provides a monthly income if any of the events prevents you from working for a specified length of time. You can obtain quotes for this type of cover via our Other Products page.
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Beneficiary
This term is used on relation to having your policy in trust. The beneficiary is the person or people who wil benefit from the policy should a claim occur.
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Critical Illness
Critical Illness insurance will pay you a tax free lump sum on diagnosis of any one of a wide range of critical illnesses including cancer, heart attack, stroke, brain tumour and many more. A critical illness is a medical condition which is serious but not necessarily life threatening.
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Guaranteed Premium
Guaranteed premiums are usually fixed by the insurer and remain the same throughout the policy term, unless you have chosen the 'indexation option, in which case the premiums will also rise linked to inflation (see 'indexation').
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Family Income Benefit
This is a type of life policy used for family protection. However, rather than producing a lump sum should you die during the selected term, the policy produces a regular tax free income for your dependants for the remainder of the plan term.
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Indexation
The benefit selected on your plan increases each year to protect against the effects of inflation. The benefit usually increases each year in line with the Retail Prices Index (RPI) and the premiums you pay also increase - usually by approximately RPI x 1.4.
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Inheritance Tax
If you die, and your estate totals over £312000 (the 2008/09 tax year threshold), then your estate will be liable to inheritance tax (IHT). The current rate of tax is 40%. It is possible to place your life policy in trust and therefore have the proceeds of the policy bypass your estate and pass directly to your beneficiaries thereby avoiding IHT.
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Insurance
Click here to read the dictionary definition. Sometime referred to as 'assurance' which means the same.
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Level Term Life Insurance
These plans are commonly used for family protection. If you die during the plan term, the policy produces a tax free lump sum for your dependants.
The amount of life cover usually remains the same over the plan term selected, hence the name 'level term'.
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Mortgage Decreasing Life Insurance
These plans are commonly used to protect a 'repayment' style mortgage i.e. where your debt to the lender reduces over the mortgage term. If you die during the mortgage term, the plan policy produces a lump sum which is used to pay off the outstanding balance of your mortgage.
Over the plan term, the amount of life cover reduces to match your outstanding mortgage loan - this helps keep the cost down as you are only paying for cover you need. This is usually the cheapest way of insuring your repayment mortgage.
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Pension Term
We have set up a page dedicated to explaining 'pension term' (otherwise known as 'life insurance with tax relief'. Please click here to view the page.
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Reviewable Premium
Reviewable premiums are usually increased by the insurer at regular intervals. Premiums typically remain the same for the first
five years of the plan and then are increased annually by the insurance company. The benefit of selecting a 'reviewable' plan is that usually the premium starts off at a much lower level than a 'guaranteed' plan, particularly when critical illness has been selected as an option.
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Settlor
This term is used on relation to having your policy in trust. The settlor is the person or people declaring the trust i.e. giving something away. In relation to a life policy, the settlor is the policyholder, and places for the policy in trust to give the benefit to the 'beneficiaries'.
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Sickness Cover
You can insure your income using an accident, sickness and unemployment policy. This will provide up to 12 months of income for you should be unable to work following an accident. Please see our Other Products page for further details.
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Tax Relief
We have set up a page dedicated to explaining 'pension term' (otherwise known as 'life insurance with tax relief'. Please click here to view the page.
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Term
This is the length of time a policy operates for, and is usually measured in years. Most life policies run for a defined number of years that you specify, and lapse without value should you survive to the end of the term.
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Terminal Illness
Most insurers give you 'terminal illness' cover free with your life policy.
This basically means that if you are terminally ill, and medical opinion is that you are not expected to survive for 12 months, then the life policy will pay you immediately rather than waiting for your death to occur. Free terminal illness cover should not be confused with 'critical illness', which covers a wide range of survivable conditions and adds significantly to the cost of a life policy.
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Trustee
This term is used on relation to having your policy in trust. The trustees are the people appointed by the 'settlors' to claim the money from the insurer in the event of a claim, and ensure the 'beneficiaries' receive the benefit in accordance with the 'settlors' wishes.
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Trusts
Placing a life policy in trust has 2 major benefits:
> If you die, the proceeds of the plan are paid immediately to your beneficiaries. If the plan is not in trust, then your beneficiaries must wait for probate to be granted on your estate.
> Putting a plan in trust correctly will ensure the proceeds of the policy fall outside your estate, and are therefore not assessed for inheritance tax. If you do not do this, then up to 40% of your benefit could be lost to inheritance tax.
A trust will have 3 main parties:
The Settlor(s)
This is the policyholder, usually yourself.
The Trustee(s)
The trustees are the people who will administer the trust i.e. claim the money if you die and be responsible for ensuring the money is applied to the beneficiaries in accordance with your wishes.
The Beneficiaries
The people who will be entitled to the money if you die.
A trustee can be a beneficiary. Similarly a settlor can be a trustee. However when planning to save inheritance tax it is important that a settlor cannot also be a beneficiary. If in doubt please contact us for general guidance. For personalised or complex trust advice you should consult a legal adviser.
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Unemployment Cover
You can insure your income using an accident, sickness and unemployment policy. This will provide up to 12 months of income for you should be unable to work following an accident. Please see our Other Products page for further details.
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Waiver of Premium
If you select this option on your policy, then should you be unable to work for longer than 6 months due to accident or illness, then the insurer will 'waive' your premiums i.e. maintain your life cover without you having to pay premiums for the remainder of your illness.
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Whole of Life
These life insurance policies are commonly used for inheritance tax planning.
The policy continues for as long as you continue to pay premiums and pays out on death, whenever that occurs. Most whole of life policies are arranged with 'reviewable' premiums i.e. the insurer will increase premiums, and this can get expensive. A few providers are now offering whole of life plans with 'guaranteed' premiums, albeit at a cost.
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