UK Life Insurance Cover Glossary

Learn the basic terms you may encounter when choosing your life insurance cover

Accidental Death and Disability Benefit

This is an optional rider (or add-on) which pays the face amount if the cause of death or total disability is due to an accident. This is sometimes called double-indemnity. There is also another option for just an Accidental Death Benefit.

Annually Renewable Term

Also called yearly renewable term. This is a version of term life insurance where the policy coverage is only for a year, with the option for the Insured to renew the coverage for another year. In most cases, the insured person does not need to show proof of insurability to renew.

Assignment

This is assigning the Policy Owner's rights to the policy to another party. One example would be when the Policy Owner uses the policy as collateral. He signs over his rights to the policy to the creditor (and also names the creditor his beneficiary), where the creditor will have the right to make changes to his policy and also receive the proceeds of the insurance when the borrower dies.

Beneficiary

A person who stands to receive the proceeds of the life insurance upon the death of the insured. The beneficiaries can either be primary or secondary – with the primary beneficiary being the first in line to receive the proceeds. When all primary beneficiaries are dead at the time of the claim, the secondary beneficiaries will be next in line to receive the policy.

Cash Value

The investment component of the policy. For cash value policies, a portion of the premiums are set aside as cash value and this fund is allowed to accumulate and earn interest.

Claim

This is availing of the benefits outlined in the policy due to a covered event (such as the death of the insured).

Coverage

Often used to refer to insurance protection. It can refer to the amount of insurance the policy covers or the type of risk the policy covers.

Death benefit

What the insurance company will pay the beneficiaries upon the death of the Insured.

Exclusions

These are risks that are not covered by the policy. For instance, if a death is caused by an exclusion (i.e. suicide within the contestable period or due to criminal acts), the benefits will not be paid.

Expiry

The end of the life insurance coverage. At this point, if the person named in the policy as the "insured" dies, there will be no death benefits payable as this person is actually no longer insured.

Guaranteed Term insurance

This term life insurance ensures that as long as premium payments come in on time, the policy is renewed and remains in force within the term. The Insurance Company does not have the right to terminate the policy within the term.

Guaranteed insurability

This privilege is given as a rider. This allows the Insured to add to his coverage within the term and not need to provide any proof of insurability.

In Force

The term that refers to the continuation of insurance coverage. While the life insurance policy is in force, the death benefits will be paid when the Insured dies.

Insurable interest

Someone is considered to have insurance interest on a person if that person's death, disability or injury would cause him or her to suffer financial and/or emotional loss. You have insurable interest on: yourself, your spouse and children, your business partners. A creditor has an insurable interest on its borrowers.

Insured

The person whose life is being insured. Upon the death of this insured, the insurance company will pay death benefits to his beneficiaries.

Increasing Term Insurance

This kind of term life insurance increases the sum insured over the life of the policy. This provides room for inflation, as an amount that seems sufficient today may not actually be enough ten years from now.

Level Term Insurance

A type of term life insurance where the sum insured and premiums remain the same throughout the life of the policy.

Limited Pay Policy

This allows the Insured to pay off his insurance coverage for a specific period (i.e. ten years or twenty years). After that, the policy is considered all paid up.

Other Insured rider.

This rider covers another family member. This rider is usually available for term life policies.

Premium

What you pay for the life insurance coverage.

Proof of insurability

This is proof that the person presents a "good" risk – meaning he is not likely to claim against the policy any time soon. Insurability is based on several factors, such as the applicant's health, lifestyle and occupation.

Rated premiums

This is a higher charge or premium rate as compared to the standard rate due to the higher risk that the Insured presents. The higher risk may take on the form of an existing health condition such as diabetes or a riskier occupation (i.e. pilots are charged higher premiums that an office worker).

Renewable Term insurance

This term insurance product allows continued renewal of the policy without having to show evidence of insurability. This does not mean that the premiums are level also.

Return of Premium Rider

Usually available for term life insurance policies, this rider returns all premiums paid if the Insured survives the term of the policy.

Rider

An "extra benefit" in the policy. This is an add-on coverage to the existing basic life insurance. It provides specific benefits for specific needs. For instance, an Accidental Death Benefit provides another benefit payment on top of the sum insured if the Insured dies due to an accident.

Sum insured

The amount listed in the policy as what it will pay. In the case of a life insurance policy, this will be the death benefit.

Surrender

Termination of policy due to: non-payment of premiums until such time that cash values are depleted and can no longer fund premium payments or; when the Insured tells the Insurance Company to stop the coverage and to refund whatever amount is due to him.

Term of the policy

The length of time the life insurance coverage continues.

Underwriting

The process by which risk is evaluated. Each insurance company will have their own rules in underwriting. Generally, the people who do the underwriting will look at the applicant's lifestyle, health, age, occupation and other factors in order to help them assess the risks of providing life insurance coverage to that applicant.'

Universal Life

A life insurance policy where the cash values are interest sensitive. When the interest rates change (based on market forces) and deviates from the assumed interest rate, it will affect the premium payment plan as well as the cash value.

Variable Life

A life insurance policy that accumulates cash values. The interest earnings of the cash values depend on how well the investment performs.

Waiver of premium rider

This rider waives premium payments after the Insured has been disabled.

Whole life insurance

This life insurance policy covers the Insured for his whole life, as long as premiums are paid promptly. This product also builds cash values by way of dividends.

More insurance resources - www.LifeAssurance.org, www.CompareLifeInsurance.net, www.OnlineLifeInsuranceQuotes.org.uk, www.LifeAssuranceQuotes.org.uk.