Like it or not, passing away is an inevitable fact of life. One of the most valuable gifts we can pass on to our loved ones is the financial security that good quality life insurance provides.
A 50 year-old can get £100,000 worth of cover for as little as around £10 per month. Despite this outstanding value for money, over 50 per cent of adults in the UK do not have life insurance, leaving their dependents financially vulnerable if something were to happen to them.
Wading through life insurance paperwork can be a little baffling at times, but this needn’t be the case. We have identified some commonly used life insurance terms and explain them briefly. This should help you better understand what you are dealing with when purchasing a policy.
Also known as life insurance, this cover pays your beneficiaries in the case of certain specified events – including death – that might happen during the term of the policy. Joint life policies enable you to insure yourself and one other person on the policy.
The length of time your life insurance policy runs for.
The monthly payment you need to make for your life insurance policy to stay valid.
The amount your life is insured for, as stated on the policy.
Critical illness cover
Critical illness insurance pays out a lump sum upon the diagnosis of a critical illness. Critical illnesses can include cancers, strokes, heart attacks and debilitating conditions like multiple sclerosis. It can be added to a life insurance policy or taken out separately. Most policies today cover over 40 illnesses and will also make partial payments for less severe illnesses, enabling you to put funds towards medical care without worrying about your finances.
Income protection pays out a regular tax-free replacement income if you are made redundant or unable to work because of ill health or an accident. In effect, it enables you to pay the mortgage as well as the daily costs of living. You can choose how much of your salary you want to cover and how long you want the policy to be in place for. Typically you have the choice to receive payments for two years, or up to age 60 or 65.
Accidental death policies cover you if you die within a specified number of days (often 80 days) following an accident. The sum is paid to your dependents in addition to your life insurance cover should you die of accidents such as a traffic accident, murder, heavy equipment accident or drowning.
Death in service
As the name implies, this is a lump sum provided by your employer in the event of your death while under their employment. Your beneficiaries would typically receive a multiple of your salary (often four times the salary).
Whole of life insurance
Whole life insurance is the most common variety of life assurance and provides a guaranteed sum. Premiums are fixed; therefore guaranteed never to increase.
Level term assurance
This is the most straightforward kind of life insurance. You pay a premium and the insurer agrees to pay a fixed, guaranteed lump should you die during the term of the insurance.
Increasing term assurance
Inflation kicks in over the long term. Increasing term assurance conveniently compensates for inflation over the term of the insurance policy by increasing the value of the sum assured.
Renewable term assurance
This arrangement gives you the option to renew the insurance once it expires and continue the policy without having to provide a medical report.
Decreasing life insurance
If you are purchasing a property, most lenders will insist that some form of life assurance is in place to protect them in the event of the borrower’s death. The amount of cover reduces steadily, roughly in line with the decreasing repayments due, as does the sum assured.
The policy could pay out a lump sum if you die during its term.
Convertible term assurance
This provides the benefit of converting a normal, level term insurance to include the investment of a whole life, investment or endowment insurance policy. This effectively transforms the policy into a savings plan that matures after a specific term (upon maturity of the policy).
An endowment life insurance policy pays a lump sum upon its maturity or your death. Typical policy terms run for ten, fifteen or twenty years, up to a certain age limit. Some endowment policies also pay out for critical illness.
As life progresses, key events happen which can mean you need to increase the amount insured on your life insurance policy; for example: birth of a child, marriage, increased salary, new mortgage. Often you can increase the amount covered without the need for medical proof if you apply for the increase within six months of the event happening.
Your premiums will not increase unless you make a change to your policy. That way there are no surprises and you’ll always know how much you’re paying.
Family income benefit
Family income benefit pays a fixed, tax free monthly or annual income to your family should you die. This is particularly interesting to people with young families and can be bought as a standalone or as an add-on to a life insurance policy.
Mortgage protection assurance
This is a form of life assurance which ensures that your mortgage is fully paid should you die before you had had the opportunity to paying it off.
A trusts is a way of putting your life insurance policy or any other valuable asset aside to ensure the money goes to the people you want it to when you die. Trusts decrease your exposure to inheritance tax as your trust funds will not be regarded as part of your estate.
Indexation or index-linking means that your premiums and the sum assured will increase in line with the Retail Price Index (RPI), which in turn means the benefits of your policy will remain conveniently in line with current levels of inflation.
Looking for Life Insurance?
Staysure has handpicked a health partner with specialists who can ensure that you are provided with the best guidance when it comes to your life insurance cover. We work with the UK’s top insurers to offer you a range of quotes so you can choose the cover that’s right for you and your family.