Glossary

Critical Illnesses
These are illnesses which are regarded by the medical profession as being life threatening. The most common illnesses covered are heart attack, stroke, cancer, major organ transplant, coronary artery by-pass surgery, major organ transplant and kidney failure. Many more than this are now covered in most policies. Make sure you check the details of any specific policy before committing.

Convertible Term Assurance
Life assurance for a fixed term usually on a level basis. At the end of the term the assured has the option of either taking out a whole of life assurance policy or an endowment for the same sum assured without the need for further evidence of health. The premium will be a little higher than ordinary term assurance to cover the additional risk.

Decreasing Term Assurance
Life assurance for a fixed period of time or specified age but where the sum assured decreases each year. At the end of the term the sum assured has decreased to zero and the policy comes to an end without value. This type of policy is normally used to protect a capital repayment mortgage and is commonly known as mortgage protection assurance.

Future Increase Benefit
Pays in installments rather than a lump sum, which is ideal for family protection.

Insurable Interest
Insurable interest exists when one party has a close and/or dependent financial relationship to the other. Common examples of insurable interest are those between spouses, a company on its key persons, director shareholders on the other director shareholders in a close company and anyone who is financially dependent on a particular person.

Keyperson
A keyperson is someone in a company who makes a considerable contribution to the company's market position. This might be a sales director for example who makes a significant personal contribution to the company's turnover through his own business contacts. If he were to die prematurely or be forced to stop working due to illness the company would find it difficult to replace him quickly and suffer financial loss as a result.

Lapse
A policy lapses or comes to an end as a result of non payment of the premiums.

Level Term Assurance
Life assurance for a fixed period of time or until a specified date. This is usually expressed in years or to a certain age. At the end of the term the policy will normally cease without value.

Some companies provide the facility for the sum assured to keep pace with inflation (indexed) by an automatic increase each year without the need for further evidence of health. The premium will also increase.

Life of Another
An application for life assurance can be made by a person who is not to be the life assured. In this case the application is referred to as one of life of another. The insurance company will need evidence that the applicant has an insurable interest in the life assured before accepting the application.

A common example of this would be a wife making an application to insure her husband. There is obviously an insurable interest and in the event of a claim the proceeds are paid outside the deceased's estate directly to the policyholder. In this case the deceased's wife. The wife is the policyholder and owns the policy.

Paid Up
This refers to the state of a life assurance policy where no further premiums are being paid but life cover continues. It applies to policies with an investment element such as most whole of life policies and endowments. The premium is taken from the accumulated investment fund(s).

Premium
The cost of the life cover. Usually paid monthly but can be paid annually and sometimes quarterly. For most policies the plan will come to an end if the premium is not paid for 1 month.

Settlor
A settlor is the term given to an individual setting up assets under a trust. The settlor agrees the provisions of the trust deed, appoints the trustees and specifies the beneficiaries under the trust.

Trustees
Trustees are those persons or a corporate body which have been appointed by the settlor of a trust to administer the trust in accordance with it's terms and conditions. The trustees are the legal owners of the trust assets but hold them on trust for the benefit of the beneficiaries.

Trusts
Trusts are used in many ways and are often used with life assurance policies, particularly where the policy is taken out to provide family protection, inheritance tax funding, partnership and shareholder protection etc.

If the life assurance policy is set up under a trust the proceeds are paid to the trustees who then pass them on to the beneficiaries in accordance with the terms of the trust deed.

There are advantages in setting up the policy under a trust. These are, first, the proceeds are, subject to certain conditions, paid outside of the deceased's estate and therefore avoid any potential inheritance tax charge. Secondly, the trust funds can be paid to the trustees without the need for Grant of Representation (outside probate). This means that the proceeds can be paid by the insurance company within a matter of days after production of the death certificate.

The most commonly used trust for life assurance policies is a flexible power of appointment trust. This gives the settlor power to change beneficial interest and appoint new trustees during his/her lifetime.

This is a complex subject and you are advised to seek professional advice before considering using a trust.

Waiver of Premium
A feature on a life assurance policy (and other plans e.g. personal pension) which is designed to protect payment of the premiums. If the assured should lose his or her income due to illness/disability for usually more that 6 months, the insurance company will pay (waive) the premiums until the assured returns to work or the policy comes to an end.

The waiver of premium feature is designed to cover the risk either on an own occupation basis or any occupation. If it is on an 'any occupation' basis, the insurance company may consider that the assured can follow another occupation. In this case the company would not normally meet the claim unless the assured were unable to work at all.

Whole of Life Assurance
Life assurance which is for all of life, i.e. no fixed or specified term. Most of these policies are investment based. The premiums buy units in a fund(s) and grow in value depending on the performance of the fund(s). The cost of the risk is paid for by the insurance company by cancelling some of the units to pay for the life cover.

Premiums are subject to review, normally after 10 years and every 5 years thereafter. If the premiums being paid are insufficient to support the chosen level of life assurance then following the review, the premiums may need to increase or the sum assured reduce.

Often there are guaranteed options built in to these policies which permit the sum assured to be increased without further evidence of health. These events are usually confined to childbirth, an increased mortgage and marriage.