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Insurance jargon explained
We know insurance can be confusing. PPI, assurance or insurance –
sometimes it can feel like another language!
That’s why we’ve created this simple glossary of terms which you can download and print
off and have to hand when researching different types of insurance or reading the small
print of your policy.
We’ve taken some of the terms we’re most often asked about so we can make this list.
We see it as a working document. As we add to this list with more terms, we’ll let you
know about it so you’ve always got an up-to-date list to hand.
Types of protection
Critical illness (CI)
Critical illness (CI) provides a tax-free lump sum if you suffer any of a list of defined medical
conditions or surgical procedures and survive for a fixed period (usually between 14 or 28 days).
Income Protection (IP)
If you cannot work due to long-term illness or injury, Income Protection pays you a percentage
of your salary each month as a regular income until either you can go back to work, you reach
the retirement age given in the policy or you die (or reach the end of the benefit payment
period if the policy is a limited-term policy). If your policy is provided by your employer,
the company will pay your employer the benefits and they will pass these on to you. If you
have a private policy, the company will pay you.
Life assurance
If you die, life assurance pays a tax-free lump sum, to provide financial support for the
people who depend on you financially, like your husband or wife or partner and children
(your dependants).
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Payment protection insurance (PPI)
(also known as accident, sickness and unemployment cover, or ASU)
If you can’t work because of illness, injury or redundancy, this covers a specific payment
you normally make, like a loan repayment or credit-card bill (though some cover household
bills too) for a limited time – usually 12 to 24 months.
Mortgage payment protection insurance (MPPI)
If you can’t work because of illness, injury or redundancy, this pays your mortgage repayments
for you, each month, for up to 12 months.
Insurance ‘jargon’
Assurance
This is another word for insurance. This is most commonly used with life assurance, where
the outcome is ‘assured’, in other words, certain. The word ‘insurance’ refers to providing
cover for an event that might happen (for example, a car accident), while ‘assurance’ means
providing cover for an event that is certain to happen (death).
Claim (otherwise known as loss)
When you apply to your insurance company for a payment under the insurance policy you hold.
Deferred period
The time between you making a valid claim and the date you start receiving insurance benefits.
For example, if you became ill and could not work from January, and your Income Protection
policy had a 6-month deferred period, your policy would start paying out in July if your
illness continued beyond those 6 months.
Excess
This is the first amount of any claim which you must cover. It is sometimes referred to as
insured’s contribution or policyholder’s contribution. For example, you may have to pay the
first £50 of the claim.
Exclusions
Things your insurance won’t cover.
Exclusion period
The period immediately after the start date of the policy, during which time you will not be
able to make a claim.
Financial Ombudsman Service
An independent organisation which deals with disputes between consumers and financial
businesses, like banks or insurers.
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Indemnity
Protection or security against damage or loss. An indemnity insurance payout is aimed at
putting you back to the financial position you were in before the accident or other reason
you have for claiming.
Level term life insurance
You can choose to have level cover or reducing cover. With level cover, your premium increases
each year so that you can maintain the payout which will be made when you die. The benefit
payment will be the same if you die after 1 year or 20 years.
Material fact
This is anything that an insurer might take account of when deciding whether to provide
cover or deciding on the premium or terms and conditions of the policy. For example,
this could include information on a medical condition that you already have when you
apply for medical insurance, or for Income Protection. You have to tell the insurance
company about any material facts when applying for insurance.
Non-disclosure
When you fail to tell your insurer about a ‘material fact’ – such as a pre-existing medical
condition – before the insurer assesses your application.
Policy
The agreement you have with your insurer – what you’re covered for, what it costs, and the
all-important small print.
Policyholder
You, the person or company who is insured. Sometimes known as the insured. A policyholder
may also take out cover on the life of another, in which case the policyholder and insured
are different people.
Premium
The amount you pay for your insurance.
Decreasing term insurance
This is a type of life insurance policy, so it pays out a lump sum if you die during the time
your insurance policy runs for (the policy’s ’term’).
This type of policy is most commonly linked to mortgages. It is designed to make sure your
entire mortgage gets paid off if you die before you’ve paid it all back. This means your family
don’t ever have to worry about it. For a normal repayment mortgage, as you pay the mortgage
back over the years, the amount you owe on your mortgage becomes less. With decreasing
term life insurance, the amount that you are insured for reduces at the same rate.
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The reason to have a decreasing amount insured (instead of a fixed or level amount insured –
see level term life insurance), is that this type of cover will be cheaper. This is because
you’re not insuring the full amount for the full length of time.
It is common for mortgage lenders to ask borrowers to take out a decreasing term life insurance
policy to guarantee that mortgage will be paid off no matter what.
For example, Andy took out a £100,000 mortgage with Big Bank in 2000 that was due to be
paid back over 20 years. He also took out a decreasing term life insurance policy to cover it.
To begin with, the amount insured was £100,000 and it had a term of 20 years, to match
the mortgage. Over the years, Andy paid back his mortgage, and by 2010 there was only
£50,000 still left to pay. The amount insured by his decreasing term policy had also fallen
to £50,000. Unfortunately, Andy was killed in a car accident. His insurance paid Big Bank the
£50,000 left which he still owed on his mortgage. Andy’s wife Caroline then owned their
house outright.
Risk
The ‘danger’ insured against, or the probability of the danger happening which the insurer
is willing to insure against.
Schedule
The detail of what a policy does and doesn’t cover.
Sum insured
The maximum amount an insurer will pay out under a claim.
Term (usually used in relation to life insurance)
How long the policy lasts for. For example, a £100,000 ‘sum assured’ 20-year level term life
assurance policy would pay out £100,000 if you died at any time in the 20 years after taking
out the life assurance.
Cover depends on policy - conditions apply.
Unum Limited is authorised by the Prudential Regulation Authority and regulated by the Financial
Conduct Authority and the Prudential Regulation Authority. Registered in England 983768.
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