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Do I need Life Insurance?

GLOSSARY of TERMS

Approved person: Someone who is considered by the FSA to be fit & proper to perform a controlled function in a particular firm. An Approved Person must act with integrity & due skill, care & diligence.

Benefit Amount is the tax-free amount that will be paid out by the policy - see also Sum Insured.

Claim: When a policyholder seeks payment or compensation under the agreements of a policy.

Compensation Scheme: Many financial products & services fall within the scope of the Financial Services Compensation Scheme. (FSCS)
This means you can seek reimbursement if you lose money because of a firm's negligence or fraud & the firm has gone out of business.

Critical Illness: Some Term Insurance products allow this as an optional extra. In addition, it is sold as a stand-alone policy. Cover can include up to 30 conditions, but will usually include major illnesses such as Cancer, Heart Attack, Stroke & Major Organ transplant.

Decreasing Term Insurance: Life insurance for a fixed period of time or specified age but where the sum insured decreases each year. At the end of the term the sum insured has fallen away & the policy has no remaining value. Typically used as a Mortgage Protection Plan.

Dependants: Your spouse (including de facto), children or any other person who is in any way financially dependent on you.

Financial Services Authority (FSA): The Financial Services Authority - commonly referred to as the FSA, has a main role to police all types of regulated activity. It was granted full power back in December 2001.

Funeral Expenses Plan:

Funeral Expenses Plan: These plans are designed  to accept either single payments or regular monthly contributions to  ensure your dependents are able to pay for your funeral  without it affecting the family's personal budget and other life expenses- see also  Whole of Life Plans.

Insurance: A product designed to pay out a lump sum (or income) in the event of an unforeseen event.

Insurance Underwriting: The process of assessing risks & setting an appropriate premium for insurance to cover those risks.

Insurable Interest: Insurable interest exists when one party has a close and/or dependent financial relationship to the other. The most common examples of insurable interest are between husband & wife, but this can extend into any situation where there is a financial dependency on a particular person.

Inflation Protector: Some products allow you to add this benefit to your plan. Typically, this is linked to the Retail Price Index (RPI). Cover & premiums will usually rise in line with each other.

Key Features Document: Your Insurance Company commonly provides a Key Features Document (KFD). It is now seen as an essential piece of literature. The KFD will give you a guide to the main points of your plan. The common areas are categorised as follows..

  • Its Aim

  • Your Commitment

  • Risk Factors

The KFD is an important document & you should ensure that it is kept safely, perhaps with your policy documents.

Lapse: A policy will lapse or comes to an end as a result of non-payment of premiums. Insurers will usually notify you first that payment is overdue. It is important to let your insurer know of any change of address.

Life Assurance: The word "assurance" describes the types of life insurance that pay out when someone dies or a cash sum becomes payable. "Insurance" policies will only pay out in the event of an unforeseen event.
However it is common these days to refer to all types of life policies as "life insurance".

Life Insurance: A policy that will pay a specified sum to beneficiaries upon the death of the insured.

Premiums: The amount you pay to secure your life cover. Usually paid monthly but can be paid annually & sometimes quarterly. You must maintain your payments if you wish to maintain the cover.

Protection: The cover you have under your insurance policy. This includes the level of additional benefits such as Critical Illness, Inflation Protection and other related optional extras.

Provider: A definition used to describe a company, which offers products to the public or other firms.

Pure Protection Policies: Commonly used to describe life insurance (or income protection) insurance that has no investment element & also meets certain other conditions. These policies only pay out as a result of a specific unforeseen event.

Repayment Mortgage: With this type of mortgage, your monthly payments pay the interest & part of the amount borrowed (capital). In this way the amount owed steadily decreases throughout the term.

Surrender Value: This is the amount you get back, after the deduction of any charges, if you cash in on investments before the end of the term. Quite often this is at a very penal rate.

Smoker Ratings: Insurers will give a lower premium rate to buyers who do not smoke or use tobacco. If you smoked in the past, most carriers will consider you a non-smoker if you have not smoked for one year prior to applying for coverage. Consumers should be aware that nicotine can be detected in a variety of routine screenings tests that are now commonly required by most insurance companies.

Tax - Free: Term insurance benefits are usually paid without tax UK tax liability. This situation could always change so it is often stated that this is true according to "present UK tax laws".

Term Life Insurance: Protection during limited number of years; expiring without value if the insured survives the stated period, which may be one or more years but usually is five to twenty years, because such periods usually cover the needs for temporary protection.

Trusts: Trusts are used in many ways but particularly so where the policy is taken out to provide family protection or inheritance tax funding. Where the life policy is set up under trust the proceeds the proceeds are paid to trustees who then pass on to the beneficiaries in accordance with the terms of the trust deed.

Waiver of Premium: Sometimes this option is included within the product you buy. Generally speaking, if you become disabled or ill & unable to work for a set deferred period - usually 6 months, the insurance company will pay the premiums for you, but only for a limited period of up to 12 or 24 months.

Whole of life Insurance   As the name suggests - a policy that will be in force all of your life - providing premiums are paid & up to date. Many insurance companies design products that build up a cash sum as well, so they are often treated as investment based products.

In later life many people take out these plans as a way of paying for their funeral - a so called "funeral expenses plan".

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