UK INCOME PROTECTION INSURANCE GLOSSARY OF TERMS
Life Protection
"Term Assurance" or "Level Life Insurance" is 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 policies the cash sum is
normally payable only once, on the first claim.
Mortgage Protection
"Mortgage Life Insurance" or "Repayment Mortgage Protection" is an insurance plan to cover your whole
repayment mortgage, or just part of it.
Your insurance plan will pay out a cash sum to meet the reducing liability of a repayment mortgage.
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.
Critical Illness Cover
"Critical Illness Cover" is an insurance plan that pays out a guaranteed cash sum if you're diagnosed as
suffering from a 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.
Income Protection
Long term State Incapacity Benefit is currently £64.35 per week!
For someone earning 25K per annum, this represents an 85% drop in income.
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.
Those who should consider this kind of protection are:
- Employed individuals without occupational provision yet with a need to protect their family.
- The Self Employed with more immediate needs - if they cannot work they do not get paid. This type of
cover does not provide protection in the event of redundancy.
Waiver of Premium
A valuable extra which, if you are unable to work through illness or accident for a number of months, will
ensure your cover continues without you having to pay the policy premiums.
Trusts
Many insurance companies supply free trust documents when arranging your policy. Placing your policy in
trust usually speeds up payment of proceeds to your beneficiaries and also may assist with Inheritance Tax
planning.
Reviewable Premiums
Plans with reviewable premiums are usually cheaper initially, however, the premiums are reviewed regularly
and can increase substantially.
Indexation
You can arrange for your insurance benefit and premiums to increase annually in line with inflation or at
a fixed percentage.
Pension Linked
If you are eligible for a personal pension, you may save money by obtaining tax relief on your life
insurance premiums - special plans allow you to do this.
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.
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'.
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 outset or flexible terms are available which permit increases in cover once the policy is in force,
within certain pre-set limits, to reflect changing personal circumstances.
Critical Illness
Life Assurance provides lump sum protection in the event of death. Critical illness policies provide lump
sum protection against diagnosis of one of a range of defined, survivable illnesses, e.g.: a heart attack.
If provided alongside Permanent Health Insurance, Critical Illness cover offers valuable additional
protection, reducing the impact of lost future earnings and additional expenses, such as home modification,
which often follow a serious illness.
