Life Insurance Glossary

Please find below our alphabetically organised Life Insurance Glossary.

ABI - The ABI is a trade association of British Insurance Companies. It has more than 400 members, who provide over 97% of the insurance business in the UK.

Assured - Those insured under the terms of an insurance policy.

Benefit - The money paid to the policyholder when a claim is made.

Bid Price - The selling price or cash-in value of your unit holdings.

Bonus - Relates to a with-profits policy. The amount of money added to the benefit payable under the policy. The amount is dependent upon the profits made by the insurance company. Added bonuses cannot be taken away.

Convertible Term Assurance - A term insurance policy which gives you the option to convert your current policy to a whole-life or endowment insurance policy, without having to take further medical examinations.

Critical Illness Insurance - A policy that pays out a lump sum on the diagnosis of life threatening illnesses indicated in the terms of the plan.

Decreasing Term - A term insurance policy in which the cover is reduced by a specific amount each year, decreasing to nil at the end of the term. The amount you pay into the policy in most circumstances will stay the same throughout the term. This type of insurance is commonly used to cover a repayment mortgage, as they are designed to pay the outstanding debt in the event of your death. There is no surrender value for this policy.

Endowment Insurance - Combines saving with some protection. If you have a unit-linked endowment insurance plan, your money is invested in an insurance company's Life Funds. The plan is designed to pay the policyholder a sum of money after an agreed number of years (or on the death of the policyholder); the exact amount received depending upon the growth of the funds invested in.

Family Income Benefit - Type of term insurance policy. Your dependants would receive a regular income until the end of the policy term, if you were to die during the term.

Guaranteed Bond - A lump sum life insurance policy, which invests in a with-profits fund. As the name suggests, the insurance company will guarantee to pay you a fixed amount at a stated time. Guaranteed Bonds can be income or growth.

Increasing Term - Type of term insurance policy. The cover and the amount you pay into the policy are increased by a specific percentage each year calculated on the original sum insured. Designed as a way to increase your life cover as your earnings increase.

Investment Bond - Combines investment with some life cover. The payments you make into an insurance policy or investment bond, usually a lump sum, are invested in the insurance company's with-profits or unit-linked funds (Life Funds). Different types of bonds include the guaranteed bond and unit-linked single premium bond. Not to be confused with a company or government bond, an investment that offers a fixed rate of interest and an area where your chosen Life Funds may be invested.

Life Fund - A unit-linked product that can invest in, for example, equities, property, fixed interest securities and cash. When you invest, your money is used to purchase 'units' in a Life Fund. Many endowment insurance policies, whole life insurance policies and investment bonds are invested in Life Funds as this type of insurance combines protection with saving. Your policy returns are directly linked to the value of the fund's underlying investments, which means there is generally no guarantee to the value of your policy when it matures. Some Life Funds can be With Profits.

Maturity - An agreed date when an endowment policy ends and the proceeds, including any bonuses, are payable.

Mutual - A life insurance company that is owned by its with-profits policyholders.

Offer Price - The price at which fund units are bought.

Premium - The amount of money paid into an insurance policy.

Proprietary - A life insurance company that issues its profits to its shareholders.

Qualifying Policy - The proceeds from an insurance policy can be paid free of income tax and capital gains tax providing the policy adheres to the rules set out by the Inland Revenue.

Renewable Term - A term insurance policy that gives you the option of renewing at expiry, without the need of further medical checks.

Single Premium Policy - Where a single lump sum is paid for an insurance policy.

Sum Insured - The amount of money that is guaranteed to be paid under an insurance policy, before any bonuses are added.

Surrender Value - Not applicable to all life insurance policies. The amount paid by the insurer if the policyholder stops paying into the policy before the agreed date, for reasons other than death.

Term Insurance - Provides policyholder with protection only. The policy is designed pay out if the policyholder dies within the specified number of years (the term). If you live beyond the term you do not receive any payment. This is thought to be the cheapest type of insurance.

Terminal Bonus - An additional sum of money paid, usually on With Profits policies, on death of the policyholder or at maturity. The amount is dependent upon the profits made by the insurance company.

Unitised With Profits Fund - Can also be called a Unit-Linked With Profits Fund. This is a type of Life Fund that can invest in UK and overseas shares, property, fixed interest securities and cash. When you invest in this fund through an insurance policy, you buy 'units'. When an annual bonus is declared, you can either receive more units or it is added to the unit price on a daily basis. Due to the addition of bonuses the unit price does not reflect the value of the underlying investments.

Unit-Linked - Also called Unitised. If your insurance policy is unit-linked, some of your money is used to purchase 'units' in a fund. The value of your policy at maturity is dependent upon the growth of the fund in which the policy is invested. Generally refers to policies that offer protection and saving such as endowment insurance, whole life insurance and investment bonds.

Unit-Linked Single Premium Bond - A single lump sum life insurance policy where your investment is spread over a number of Life Funds.

Whole Life Insurance - Provides protection with or without investment. As the name suggests, this insurance pays a guaranteed sum on the death of the policyholder, it covers you for the whole of your life. This insurance can be without-profits, with profits or unit-linked. In other words you can choose insurance that pays out on death a guaranteed sum only, the sum plus any bonuses that have been added, or the sum plus any additional value from the growth of the funds invested in.

Without Profits - When a policy reaches maturity or the policyholder dies, the amount paid out is the basic guaranteed sum only. You would not be entitled to any bonuses.

With Profits - Relates to insurance policies that combine investment with protection. This type of policy is entitled to a share of the profits made by the insurance company. The profits are in most cases added to your insurance policy as an annual bonus, when added they cannot be taken away. In practice With Profits are used to smooth out the fluctuations in the stockmarket; the company retains some of the profits made in the good years to supplement the years in which returns are bad. See also Unitised With Profits Fund and Terminal Bonus.

With Profits Bond - An insurance policy where your lump sum is in most cases invested in a Unitised With Profits Fund (which is listed under the Life Funds section).