Life Insurance Jargon Buster

Looking for a simple way of understanding life insurance?

Here at Bobatoo.co.uk, my friends and I aim to provide information and solutions that are simple to understand and jargon-free as insurance can sometimes be complicated.

If you’ve read my ‘Simple Guide to Life Insurance’ blog post, you may have read that there are a number of different life cover policies available and the trick is choosing the right one to suit your needs. Another part of that choosing process is understanding exactly what each policy offers. That can be a bit of a challenge when insurance companies use jargon that often makes no sense. That’s where I can help. Listed below are a number of life insurance jargon terms explained, so you can make the right decision when buying life insurance.

Accidental death benefit

This is an insurance policy that pays out a tax-free (under current legislation!) lump sum to your family should you die as a result of an accident.

Accident, sickness and unemployment insurance

Also known as ‘ASU’, this policy provides you with a monthly sum of money should you become unable to work due to an accident, illness or redundancy. 

Actuary

An actuary is someone who is qualified to calculate financial risk and impact. They can pass their findings on to insurance companies so that those companies can assess their own risks and how much they should charge their customers. 

Body Mass Index (BMI)

This is a statistical way of determining a person’s ideal healthy weight. This is done by comparing that person’s height and weight.

Cover

Cover simply means the protection provided by your insurance company.

Critical illness cover

Also known as critical illness insurance, this policy provides a lump sum of money should you be diagnosed with a critical illness during the length of your policy.

Death in service

This policy provides a lump sum of money should you die whilst working for your employer. It can be set up by the company you work for and usually pays out 3-4 times your annual salary. Usually this is part of a corporate insurance policy, but some personal insurance policies can add this as a benefit.

Decreasing term assurance

This type of life insurance policy decreases in value over time. These are usually linked to mortgage repayments and can be known as ‘Mortgage Protection’. 

Family income benefit

These provide a regular (and tax free) income to your family when you pass away. It can be taken out as a standalone policy or as an add-on to other life insurance cover.

General practitioner report

This is a document that provides details of your medical history and current health provided by your GP. It’s used by your insurance company to assess your health and ultimately your life insurance policy terms and conditions.

Guaranteed insurability option

This is often abbreviated to ‘GIO’ and allows you to increase the amount of cover you have without the need for more medical information. 

In force

This describes the status of your life insurance policy. If it is in force, it means that your premiums are being paid and that you are protected and fully covered by the policy.

Income protection

This protects your salary should you temporarily become unable to work because of an accident or illness.

Indexation

If you have chosen an index linked life insurance policy, the value of this policy will increase over time. This increase is in line with the Retail Price Index (RPI) and protects you against inflation. 

Insurable interest

This is a life insurance policy that you take out for somebody else. You have to prove that the death of that person would impact you financially, however – it’s usually something that people do for their partners for example.

Life insurance quotes

This refers to the process of offering a potential customer the price of a certain insurance product.

Intestate

Intestate refers to a person that has passed away without making a will. If this has happened, the government is responsible for distributing their estate/belongings. 

Life assurance

This term is interchangeable with ‘life insurance’. It provides certain levels of protection for your family and loved ones when you pass away during the policy term.

Life insurance

Also known as life assurance (see above!).

Life insurance smoker

Often different policy terms apply to people who smoke. Most insurers will ask if you have used tobacco products within a certain period which can have an impact on the cost of your policy.

Joint life

This type of life insurance policy covers two people rather than one.

Joint life first death

If you have taken out a joint life insurance policy, ‘first death’ means there will be a payout after the first person passes away.

Joint life second death

A joint life second death policy means that there will be a payout after both people pass away.

Lapsed policy

If you don’t pay your full premium, your policy and the benefits that come with it will cease and may be terminated.

Level term assurance

A ‘no frills’ form of life insurance where you pay a premium for a particular length of time and the insurer pays a lump sum should you die during the length of the policy.

Mortgage protection assurance

See ‘Decreasing term assurance’.

Policy documents

These documents will be sent to you once you have taken out insurance. They will include details of your policy schedule and policy terms and conditions. Keep them safe!

Premium

A premium is the amount of money you pay an insurer for providing your cover. These can be paid monthly or annually.

Retail Price Index (RPI)

This is a measure of inflation, which is published monthly by the Office for National Statistics.

Reviewable premium

When you take out critical illness cover, you can choose between reviewable premiums and guaranteed premiums. A reviewable premium means your policy is guaranteed for an initial period and then reviewed regularly after that. 

Sum assured

This is the amount of cover you are insured for.

Surrender

If you surrender your life policy, it means you want to cancel it. There can be a charge for this and if there is cash value in your policy, the charge will be deducted. 

Terminal illness benefit

This is similar to critical illness cover, however it provides a payout should the insurance holder be diagnosed with a terminal illness within the length of the policy.

Total and permanent disability cover

This type of life insurance policy provides a payout should the policy holder become permanently disabled during the length of the policy. 

Trust

A trust is a way of ensuring that your valuables go to the right people when you die. You can put your life insurance policy in a trust, which means that you may be able to avoid inheritance tax on the payout.

Terminal illness cover

See ‘critical illness cover’ above. 

Underwriter/Underwritten

An underwriter is the qualified professional who assesses the risks of an applicant. By calculating the chance of making a claim and looking at these risks, the underwriter can determine how much you need to be insured for and at what premium.

Waiver of premium

This can be offered as a policy add on and it means that you may be able to continue with your life insurance policy without further premiums if you become unable to pay due to sickness, injury or unemployment.

Whole life

This is referred to as ‘permanent life insurance’ because you are covered until the time of your death – whenever this occurs.

These are just some of the terms associated with life insurance but if you need help understanding any others, why not get in touch? My friends and I also offer a number of life insurance products, as well as a great life cover calculator (if I do say so myself!) to help you see how affordable a policy could be for you.

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