When you take out a life insurance policy, you’ll be asked to name a ‘beneficiary’. This is the person (or people) you’d like to receive the lump sum that’s paid out by your insurance company if you die. Often people choose their partner, children or family.
A broker acts as an intermediary between buyer and seller. In the insurance world, this means between the consumer and the insurer. It could be an individual or a company. At Anorak, we’re an independent online broker for life insurance, income protection and critical illness cover. We have access to the whole market of insurers – and we work for you, not them.
An insurance ‘claim’ is the process of requesting payment from your insurance provider because the event that you’re insured for has happened. In the case of life insurance, the claim would be made by your partner or family (or whoever you’ve named ‘beneficiary’) in the event of your death.
Having ‘cover’ in place means an insurer has taken on the risk of something happening to you, and that they’ll pay out if it does. Your cover ‘amount’, is how much you’re covered for – i.e. how much your insurer would pay out if the event happens. For life insurance, the event is your death, and the cover amount is paid out as a lump sum if you die.
Critical illness cover
Critical illness cover is an insurance policy that pays out a lump sum if you’re diagnosed with one of the illnesses or conditions listed in your policy. It’s often bought at the same time as life insurance, since many insurers offer combined products – the idea being that you’re covered for both death and illness with one policy.
All life insurance policies come with a ‘death benefit’ – which is a technical way of saying that the policy will pay out if you die. Policies can sometimes have other benefits too, like ‘terminal illness benefit’ – in which case it would pay out early if you were diagnosed with a terminal illness.
Death in service
Death in service (or group life insurance) is a benefit provided by some employers. If you have it, your named ‘beneficiary’ – i.e. the person (or people) you’ve nominated to receive the money – will be paid a lump sum if you die while you’re an employee of the company. The lump sum is usually a multiple of your annual salary – e.g. 2x or 4x.
Death in service is similar to life insurance in the sense that it’s there to help support your loved ones financially if you die. But it’s different in that it’s provided by your employer – as opposed to life insurance, which you take out yourself. If you stop working for the company that provides you with death in service, you’ll no longer be covered by the benefit.
Decreasing term life insurance
Term life insurance is an insurance policy that pays out a lump sum if you die within an agreed period of time – your policy ‘term’. If you buy decreasing term life insurance, the amount of money paid out as a lump sum decreases over time. So, if you die nearer the beginning of your policy term, the lump sum will be bigger than if you die nearer the end.
People typically buy decreasing term cover if they know their needs will also decrease over time – i.e. because they’re gradually paying off a mortgage, or because their children will eventually become financially independent.
Many employers offer employee benefits to their employees. This usually means additional benefits or compensation beyond your normal salary and could include things like employer sick pay or death in service cover.
Insurance policies can come with ‘exclusions’ – which means circumstances in which they won’t pay out. A ‘suicide exclusion’ is common in life insurance policies, stipulating that the policy won’t pay out if you die by suicide within 12 months of taking out the policy.
Some exclusions always come with the policy and apply to anyone who takes it out; others may be added by the insurer based on your particular circumstances at the time of taking out the policy (e.g. your health history, job or lifestyle).
Existing medical conditions
An existing (or pre-existing) medical condition is one that you already have at the time of taking out an insurance policy. This is important in the case of life insurance because having an existing medical condition could affect how much of a risk you are to insure. An insurer may charge a higher premium or refuse your application based on you having an existing medical condition, depending what it is and how severe it is. You will be covered for an existing medical condition unless your insurer specifically excludes it.
Family income benefit
Family income benefit is a type of life insurance policy that, instead of paying out a lump sum if you die, pays out a monthly amount. It’s designed with families in mind – the idea being that if one income is suddenly missing, having a monthly payment coming in would help the surviving family to keep covering the essentials and maintain their lifestyle.
A premium is the monthly price you pay to be covered by an insurance policy. If you have ‘guaranteed' premiums, this means your premiums are guaranteed to stay the same (or go up at a guaranteed rate) for as long as you hold the policy. The alternative to guaranteed premiums are 'reviewable' premiums, which are reviewed at intervals throughout the policy. With reviewable premiums, you won't know at the time of taking out the policy how expensive they could become.
Increasing term life insurance
Term life insurance is an insurance policy that pays out a lump sum if you die within an agreed period of time – your policy ‘term’. If you buy increasing term life insurance, the amount of money paid out as a lump sum increases over time. So, if you die nearer the beginning of your policy term, the lump sum will be smaller than if you die nearer the end. People typically buy increasing term cover if they know their financial liabilities will go up over time, or simply to factor in inflation.
Income protection insurance
Income protection is an insurance policy that pays out a monthly amount if you can’t work for medical reasons. If you’re signed off work by a medical professional, you can claim on your income protection policy. You can’t claim if you’ve lost your income for any other reason – like redundancy.
When you take out life insurance, you can choose to 'index link' your cover – also known as 'indexation'. This ensures the value of your cover (i.e. the lump sum that would be paid out if you die) goes up in line with inflation. If you choose indexation, your monthly premiums will also increase with inflation.
The ‘insured’ is a technical way of referring to the person who is insured by an insurance policy. Sometimes called the ‘policyholder’. It’s likely you’ll come across these terms in your policy documents.
Joint life insurance
Joint life insurance is an insurance policy that covers two people (or two 'lives', as it'll probably be referred to in the policy documents). It will pay out if one of the two people dies. It’s generally designed to cover a couple – so one partner is financially protected if the other dies. Bear in mind that a joint life insurance policy usually ends after the first death; after which, the surviving partner would no longer be covered with life insurance.
Level term life insurance
Term life insurance is an insurance policy that pays out a lump sum if you die within an agreed period of time – your policy ‘term’. If you buy level term life insurance, the amount of money paid out as a lump sum will always stay the same. People typically buy level term cover if they know their financial liabilities will always stay the same – so the money needed in 5 years’ time, for example, is the same as what would be needed in 25 years’ time.
Life insurance is an insurance policy that pays out a tax-free lump sum if you die. It’s designed to financially protect the dependents you leave behind. Different types include: term life insurance, whole-of-life insurance, and over-50s life insurance.
Misrepresentation is the most common reason for a life insurance claim not being paid. It simply means not being honest during the application process. It’s very important to be honest about your health and lifestyle when you apply, otherwise you risk invalidating your policy.
Mortgage protection insurance
Mortgage protection insurance is an insurance policy that covers the cost of your monthly mortgage repayments if you can’t work due to accident or sickness, or due to unemployment – or both, depending on the type of policy you buy. Insurers usually have an upper limit of how much they’ll insure you for (e.g. £1,500/month) and policies often come with a waiting period before it starts paying out.
Over-50s life insurance
Over-50s life insurance works like a whole-of-life policy, designed especially with the over-50s age group and their particular protection needs in mind. This kind of policy covers you for the rest of your life, however long you live, and is guaranteed to pay out when you die, whenever that happens. This can make it more expensive than other alternatives like term life insurance (which only pays out if you die during a fixed period of time).
Payment protection insurance
Payment protection insurance (PPI) is an insurance policy designed to cover specific loan or finance repayments in case you can’t work due to redundancy, illness or injury. It only provides short-term cover and, unlike income protection, it’s not medically underwritten when you take out a policy. This means it can be easy to take out payment protection insurance, but sometimes difficult to claim.
An insurance ‘payout’ is the money paid out by the insurer if you make a successful claim. You should receive your payout if the thing that you’re insured for happens. In the case of life insurance, the lump sum payout is made if you die during your policy term.
The ‘policyholder’ is simply the person who holds the insurance policy. In other words, the person who is insured by the policy. The policy will pay out if the event that’s covered (e.g. death) happens to the policyholder.
An insurance ‘premium’ is the monthly price you pay to be insured. For life insurance, these can either be guaranteed or reviewable. A guaranteed premium will always stay the same (or go up at a guaranteed rate) for as long as you hold the policy; a reviewable premium will be reviewed at regular intervals, so you won’t know how much it could cost in the future when you take out the policy.
Premium loading (or rating)
If an insurer adds a premium loading or rating to your life insurance policy, it means your monthly premiums will be more expensive than they would normally be. They'll add a loading if they think you're more of a risk to insure than someone else of a similar profile – e.g. because you have a particular health condition or you have a risky hobby.
An insurance ‘quote’ is an estimate of how much it might cost you to be insured with a particular policy by a particular insurer. Specifically, it’s an estimate of what your monthly premiums would be. To make the quote as accurate as possible, it’s based on the information you provide about yourself, your health and lifestyle, as well as the insurer’s current rates. You’ll get a final price once your application goes through the underwriting process.
A premium is the monthly price you pay to be covered by an insurance policy. If you have ‘reviewable’ premiums, this means your premiums will be reviewed at regular intervals through the duration of your policy. You won’t know when you take out the policy how little or how much your premiums will change in the future. The alternative to reviewable premiums are ‘guaranteed’ premiums, which are guaranteed to stay the same (or go up at a guaranteed rate) for as long as you hold the policy.
‘Sum assured’ is the technical way of referring to the amount of cover you have in place through your life insurance policy. It’s also the amount of money that would be paid out by the insurer if you died. It's likely to be referred to as the sum assured (or sum insured) in your policy documents.
When you buy term life insurance, the policy ‘term’ is how long you’ll be insured for – e.g. 10, 20 or 30 years. You choose the term when you buy the policy and it will pay out if you die in that time.
Term life insurance
Term life insurance is a life insurance policy that covers you for a set amount of time – known as the policy ‘term’. It pays out a lump sum if you die during your policy term. It won’t pay out if you die after that time as you’ll no longer be insured.
Terminal illness benefit
Some life insurance policies come with ‘terminal illness benefit’ – which means the policy will pay out early if you’re diagnosed with a terminal illness. To qualify for this benefit, most insurers would require a doctor to state that you have 12 month or less to live.
A ‘trust’ is a legal arrangement for leaving assets to the person (or people) you choose. Life insurance can be a significant asset, so it’s a good idea to put it into trust. That way you have greater control over how it would be paid out if you died. It also makes the money easier to access and could protect it from inheritance tax (depending on the value of your estate).
Underwriting takes place when you apply for an insurance policy. It’s the process of an insurance company assessing how much of a risk you are to insure – in other words: how likely it is that you’ll need to make a claim and that they’ll need to pay out. An underwriter is responsible for evaluating this risk and deciding whether or not to accept your application, under what terms, and how much it’ll cost.
Waiver of premium
When you buy a life insurance policy, you agree to pay a monthly premium for as long as you hold the policy. If your policy has waiver of premium, it means you’ll be exempt from paying your monthly premiums if you can’t work for medical reasons. Insurers usually impose a waiting period on this benefit – i.e. a minimum amount of time you need to be off ill or injured before you can waive your premiums.
Whole of life insurance
Whole of life insurance is a life insurance policy that covers you for the rest of your life, however long you live. It’s guaranteed to pay out when you die, whenever that happens. This can make it more expensive than other alternatives like term life insurance (which only pays out if you die during a fixed period of time).