Jargon Buster

There are many different types of life assurance policies, and terminology and policy makeup can change from company to company. Explanations of some of the terms used are given below to help you with this, but this information should not in any way be taken as advice.

The notes on this glossary are intended as a very brief description of various terms.
If you feel that you would benefit from individual advice before arranging life insurance, please obtain this elsewhere as Power Robbins Life Insurance Discounts do not provide advice.

Convertible Term Assurance

This type of life assurance can start as a normal level term assurance with the conversion option included. It can then be converted to another policy without further medical underwriting. This means that should medical problems occur later on during the term of your policy, which would make it difficult for you to obtain new life cover, you can increase, change or prolong the cover available. The exact terms of how much you can extend the sum assured or the term will be described in the literature accompanying your personal quotation. On converting the policy you would pay the premium appropriate for your age at the time, but any medical conditions which had started since the original policy started, would not be taken into account.

Conversion Option

If this option is available, adding it to your policy at an extra cost will give you a convertible term policy. By adding this type of option to a level term it becomes a convertible term policy – please see our notes on convertible term policies. (Age limits/restrictions may apply – please read the key features which will be included with your quotation.)

Critical Illness

This is also called “dread disease” cover. This benefit can be added to a life assurance contract, or it can be offered as a separate contract. The sum assured will be paid out on diagnosis of any of the stated critical illnesses, i.e. a life threatening illness from which you recover. Details of the critical illnesses covered by the insurance company will be enclosed with your illustration. The ranges of critical illnesses covered by various insurance companies differ, and the severity of your own illness may have some bearing on whether a claim is paid. Age limits and restrictions may apply – please read the key features when you receive your illustration. Normally when critical illness benefit is added to a life policy, the policy ends if the benefits are paid out following a critical illness.

The premiums for critical illness cover are more expensive than for life cover, because with modern medicine, many more people recover from life-or-death illnesses than die from them.

A bit of both - full benefits if you die during the term and a smaller benefit if you survive a critical illness during the term.

Some people think it’s unnecessary to have as much money paid out after surviving a critical illness, as on death.

For example, on surviving a critical illness, some people might only want enough money to pay their mortgage and help with household bills for six months.

We can quote you for two separate policies – life cover, and a smaller amount of critical illness cover. People who have 2 separate policies for life and critical illness cover, could arrange cover for BOTH eventualities – surviving a critical illness during the term, AND a later death during the term.

Decreasing Term / Mortgage Protection Cover

This type of policy pays out on death (most policies would pay out earlier if a terminal illness was diagnosed). We offer quotations showing a set premium. A mortgage protection policy normally guarantees to pay off the balance of a decreasing loan, provided the interest rate doesn’t rise above a certain level. The exact terms are described in the insurance company literature accompanying your personal quotation

Family Income Benefit
Instead of providing a lump sum benefit, this provides a regular income (usually paid monthly) for your dependants until a date specified by you at application stage, should you (or a joint life assured) die before that date. The benefit can be paid either on death of a life assured, or on an earlier critical illness if this option has been selected. It is possible to have the income benefit linked to the average earnings index. If this option was selected, premium payments would increase each year.

Guaranteed Premiums

For Term Policies – i.e. policies which will be in force for an agreed period of time
This is a premium guaranteed to remain the same during the life of the policy. Power Robbins only provide quotations for term assurance with guaranteed premiums, unless the client specifically tells us that reviewable premiums are required.

Most Whole of Life policies guarantee that the premium will remain the same for a specified amount of time, then the premium (or the amount of cover) would be reviewed at intervals. This is explained below, and fuller details would be given in the literature accompanying your quotation. It is also possible to have a Whole of Life policy where the premium amount is guaranteed to remain the same for the whole life of the policy. Unless the client requests only one sort of premium, Power Robbins sends quotations for both guaranteed and reviewable premiums, for Whole of Life policies.

See also – reviewable premiums

Joint Life Cover or 2 x Single Life Cover Policies?

If two people wish to have life cover arranged, there are two ways of doing this.

Joint Life Policy
A joint life policy can be arranged so that the benefits would be paid out following the death of either the first, or the second life assured
(for example if two people had a joint mortgage debt, they would want a policy paying out after the first death).

Single Life Policies
Two separate single life policies usually cost a little more in premiums than a joint life policy. With two separate single life policies, if both lives assured were to die at the same time, the full amount of benefit would be paid out on each life. If one of the lives assured died, benefits would be paid out on that policy, and the survivor would have the opportunity to keep their own life policy going if they so wished.

Level Term Cover

With this type of policy the sum assured remains the same throughout the term of the policy. With most modern policies, if a terminal illness was diagnosed during the term of the policy (except for during the last 18 months) most policies would pay out the full benefits early, and no more premiums would be payable. The exact terms will be described in the literature and key features accompanying your personal quotation.

We offer quotations showing premiums which are guaranteed to remain the same for the term of the policy. There are also policies available with reviewable / index linked premiums and cover, but you will need to make a specific request for anything other than guaranteed premiums, when requesting your quotation.

Life of Another

A life policy can have different parties, the life/lives assured and the proposer. This is a way of insuring one person’s life but with death benefit being passed straight to the owner of the policy. This would mean that there would be no need to wait until probate had been granted, for the owner of the policy, i.e. the intended recipient, to receive the death benefits. For example, if a wife is the proposer on a mortgage protection policy covering her husband’s life, the benefits are payable to her straight away on his death, instead of having to wait for probate on his estate.

Mortgage Protection / Decreasing Term Cover

This type of policy pays out on death (most policies would pay out earlier if a terminal illness was diagnosed). We offer quotations showing a set premium. A mortgage protection policy normally guarantees to pay off the balance of a decreasing loan, provided the interest rate doesn’t rise above a certain level. The exact terms are described in the insurance company literature accompanying your personal quotation

Reviewable premiums

The premium or amount of cover can change on the policy review dates (depending on market conditions, not on your state of health). The review is undertaken by the insurance company and therefore the premium may increase periodically during the time your policy is in force.

Smoker

As a general rule, if you have used any tobacco products within the last 12 months, the insurance company will classify you as a smoker. Premium rates are usually higher for smokers than for non smokers.

Replacing existing policies

If you are considering replacing an existing policy, you are strongly advised to continue paying premiums on any existing policy until you are informed in writing by the new insurance company that your new policy is fully on risk.

Terminal Illness

Terminal illness is an additional benefit which is now included at no extra cost by most insurance companies, in level term assurance and some mortgage protection policies. It is normally provided by insurers at no extra cost – please check your illustration and key features to see if this is included.

The policy benefits would be paid out if you died during the term, OR if you were diagnosed with an illness from which you were expected to die within 12 months. Usually, a terminal illness claim is not upheld during the last 18 months of the policy term. Please check the conditions of the terminal illness benefit in the key features, as each company may differ slightly.

Terminal illness benefit must not be confused with critical illness, which is a more expensive addition to a policy.

Waiver of premium benefit

This can be added to most policies for an increased premium. The insurance company will pay your premiums for you in the event of long-term ill health or incapacity.

Whole of life policies

There is no set term with this policy, and cover is provided for lifetime, provided the premiums are paid. Premiums are normally reviewable (see notes below). However, when we send you quotations we always send one quotation based on guaranteed rates of premium and cover, and the second based on reviewable premiums/cover, where an investment element is built into the plan. The key features to each quotation will give you full information on these plans.

Cover is maintained for as long as premiums are paid and, unlike term assurance, a reviewable whole of life policy may build up a surrender value, but this is dependent on market conditions and the cost of the life cover. A guaranteed premium whole of life policy does not normally build up a surrender value.

You will see maximum and standard cover mentioned in company key features. As a rough guide, maximum cover gives the maximum sum assured for the minimum premium – very little money is built up in the plan to soften the next review on the policy.

Standard cover means that you pay more each month and the idea is that this will not just pay for the life cover, but will build up funds to soften the next review.

There is no guarantee that these policies will attain a value. The premium for maximum or standard cover is reviewable after a set period of time (confirmed in the key features) depending on market conditions.

Three ways of paying whole-of-life assurance premiums

Maximum Cover
This gives the cheapest premium possible, to start with. Most of the premium paid goes into providing life cover, rather than investment. The premium is then reviewed regularly, according to investment returns. This type of policy is likely to have the steepest increases at premium review times.

Standard Cover
This costs more than Maximum Cover, but costs less initially than a policy with premiums guaranteed to stay the same for the life of the policy. More of the premium paid is used for investment with this type of policy, so when the regular premium reviews happen, any premium increases would be lower than with a Maximum Cover policy.

Guaranteed Premium
The third quotation will show a premium guaranteed to remain the same for the entire life of the policy.