Every insurance term explained. In actual English.

Actuary

A mathematician who works out how likely you are to die, get ill, or make a claim - and therefore how much your insurance should cost. Actuaries are the reason a healthy 30-year-old pays less than a 55-year-old smoker. They build the pricing models that every insurer uses.

You will never speak to an actuary directly, but their work determines every premium you are quoted.

Beneficiary

The person (or people) who receive the payout when you die or make a valid claim. For life insurance, this is usually your spouse, partner, or children. You can name multiple beneficiaries and specify how the money is split.

If your policy is in trust, the trustees decide who receives what (guided by your letter of wishes). If it is not in trust, the payout goes into your estate and is distributed according to your will - or intestacy rules if you do not have one.

Benefit in Kind

A non-cash perk from your employer that HMRC considers taxable. If your employer pays for your private medical insurance, that is a benefit in kind - and you will pay income tax on its value. It shows up on your P11D form.

Relevant life insurance is specifically designed to avoid this. The premiums are a legitimate business expense and do not create a benefit in kind for the employee.

Contestability Period

The window (usually the first 1 to 2 years of a policy) during which an insurer will scrutinise a claim more closely. If you die or claim during this period, the insurer may investigate whether your application was accurate. After the contestability period, claims are generally processed more straightforwardly.

This is not unique to any one insurer - it is standard practice. It exists to deter fraud, not to catch honest mistakes. If you answered everything truthfully on your application, you have nothing to worry about.

Cover Amount

See Sum Assured. The total amount your policy will pay out. For life insurance, this is the lump sum your family receives. For income protection, it is the monthly benefit amount.

Critical Illness Cover

Insurance that pays a tax-free lump sum if you are diagnosed with a specified serious illness. The standard list typically includes cancer, heart attack, stroke, and multiple sclerosis, among others. Most comprehensive policies cover 40 to 50 conditions. It pays on diagnosis, not on death - the money is yours to use however you need.

Critical illness is not the same as income protection. Critical illness pays once for specific named conditions. Income protection pays a monthly income if you cannot work for any medical reason. They do different jobs.

Death in Service

A life insurance benefit provided by your employer, typically paying a multiple of your salary (commonly 2x to 4x) to your family if you die while employed there. It is a workplace benefit, not a personal policy - which means it disappears the day you leave that employer.

Relying solely on death in service is risky. If you are made redundant, change jobs, or your employer removes the benefit, you are left with nothing. Personal life insurance covers you regardless of employment.

Decreasing Term

A type of life insurance where the payout reduces over the term of the policy - typically designed to mirror a repaying mortgage. As your mortgage balance decreases, so does the cover amount. The premium stays the same throughout, but the potential payout gets smaller each year.

Decreasing term is cheaper than level term because the insurer is paying out less as time goes on. It is the right choice for mortgage protection but the wrong choice for family income replacement, where you need the same amount whether you die in year 1 or year 20.

Deferral Period

The waiting period at the start of an income protection claim before the insurer starts paying you. Common options are 4 weeks, 8 weeks, 13 weeks, 26 weeks, or 52 weeks. The longer you are prepared to wait, the cheaper your premium.

Choose your deferral period based on how long you could survive without income. If you have 6 months of savings, a 26-week deferral period makes sense. If you would struggle after a month, you need a 4-week deferral - and it will cost more.

Estate

Everything you own when you die: your house, savings, investments, possessions, and - critically - any life insurance policies that are not in a trust. Your estate is what gets divided up according to your will (or intestacy rules), and it is what inheritance tax is calculated on.

Putting life insurance in trust takes it outside your estate. This is one of the simplest and most effective bits of estate planning anyone can do.

Excess

The amount you pay towards a claim before your insurer picks up the rest. Common in private medical insurance and health cash plans. A policy with a £250 excess means you pay the first £250 of any claim. Higher excess means lower premiums.

Life insurance and critical illness cover do not have excesses - they pay the full sum assured. Excess is mainly a feature of private medical insurance.

Exclusion

A condition, activity, or circumstance that your policy specifically will not cover. If you have a pre-existing back condition, the insurer might exclude back-related claims. If you skydive, there might be an exclusion for skydiving injuries. Exclusions are always listed in your policy schedule.

This is why reading your policy schedule matters. The cheapest policy is not the best value if it excludes the very thing you are most likely to claim for.

Family Income Benefit

A type of life insurance that pays a regular monthly income to your family rather than a single lump sum. If you die, your family receives a set amount every month until the policy term ends. It replaces your income in the way your salary does now.

Family income benefit is significantly cheaper than level term for the same level of monthly support. A £500,000 lump sum and £2,000 per month for 20 years provide roughly the same total, but the monthly version costs much less because the insurer pays out gradually.

Free Cover Limit

In a group life insurance or group income protection scheme, this is the maximum cover an individual employee can receive without needing personal medical underwriting. Below the free cover limit, everyone is covered automatically. Above it, the insurer wants to assess the individual.

The free cover limit varies by scheme and insurer. It is particularly relevant for employers setting up group protection - employees above the limit may face medical questions or exclusions.

Full Medical Underwriting

A thorough approach to assessing your health where the insurer asks detailed questions about your medical history upfront, before you start the policy. Every pre-existing condition is considered, and the insurer decides what to cover, what to exclude, and what to charge before the policy begins.

This is the opposite of moratorium underwriting. Full medical underwriting gives you certainty from the start - you know exactly what is covered and what is not. We generally recommend it over moratorium-based policies.

GP Report

A medical report requested by the insurer from your GP as part of the underwriting process. It gives the insurer a detailed picture of your medical history. You have to give consent for the insurer to request it, and you have the right to see it before it is sent.

Not every application requires a GP report. They are typically requested for higher sums assured or when your medical questionnaire answers flag something the insurer wants more detail on. GP reports can take 4 to 8 weeks, which delays your application.

Grace Period

A short window (usually 30 days) after a missed premium payment during which your policy remains active. If you pay the overdue premium within the grace period, your cover continues as if nothing happened. If you do not, the policy lapses.

Grace periods exist because people miss direct debits for all sorts of innocent reasons - a bank switch, a temporary cash flow issue. Insurers build in this buffer so a single missed payment does not immediately leave you unprotected.

Guaranteed Premium

A premium that is fixed for the entire term of your policy. Whatever you pay in month one, you pay in month 240. The insurer cannot increase it regardless of changes to their claims experience, your health, or the economy.

Most term life insurance in the UK uses guaranteed premiums. It is the standard. Reviewable premiums are more common in whole of life policies and some older income protection plans.

Health Cash Plan

A low-cost plan that reimburses you for everyday health expenses - dental check-ups, optician visits, physiotherapy, prescriptions. You pay a modest monthly premium and claim back a set amount per treatment, up to annual limits.

Health cash plans are not private medical insurance. They do not cover surgery, hospital stays, or serious treatment. Think of them as a way to budget for routine health costs. Premiums are typically £5 to £30 per month.

Income Protection

Insurance that replaces a portion of your income (typically up to 60-70% of your pre-tax earnings) if you are unable to work due to illness or injury. It pays a monthly benefit until you recover, reach retirement age, or the policy term ends - whichever comes first.

Income protection is arguably the most undervalued insurance product in the UK. It covers any medical reason you cannot work, not just a list of specific conditions. If you rely on your income to pay your bills, this is the policy that actually replaces it.

Indexation / Index-Linked

An option that automatically increases your cover amount (and your premium) each year in line with inflation, usually measured by the Retail Price Index (RPI) or a fixed percentage like 3% or 5%. It prevents your cover from being eroded by rising prices over the life of the policy.

A £200,000 policy taken out today will feel like much less in 25 years if inflation averages 3%. With indexation, your cover grows to keep pace. You can usually opt out of the annual increase if your budget is tight in a particular year.

Inheritance Tax

A tax of 40% charged on the value of your estate above the nil-rate band (£325,000 per person) when you die. If you leave your home to your children, there is an additional residence nil-rate band of £175,000. These allowances are transferable between married couples and civil partners.

Life insurance in trust falls outside your estate and is not subject to IHT. Life insurance not in trust is added to your estate and can push you over the threshold. This is the single biggest reason to put your policy in trust.

Joint Life First Death

A single policy covering two people that pays out when the first person dies. After the payout, the policy ends - the surviving person is no longer covered. It is cheaper than two separate policies but provides less total protection.

For couples, we often recommend two separate single-life policies rather than a joint policy. It costs a little more, but if one person dies, the other still has their own cover in place. With joint life first death, the survivor is left uninsured at the worst possible time.

Joint Life Second Death

A policy covering two people that only pays out when the second person dies. Both must die before anyone receives the payout. This is primarily used for inheritance tax planning - the IHT bill typically crystallises on the second death, so that is when the money is needed.

Second death policies are significantly cheaper than first death because statistically, it takes longer for both people to die than for just one. They are not suitable for mortgage protection or income replacement.

Lapsed Policy

A policy that has ended because the premiums stopped being paid. Once a policy lapses, your cover is gone. You cannot make a claim on a lapsed policy, and reinstating it (if the insurer even allows it) may require fresh underwriting at your current age and health.

If you are struggling to afford your premiums, talk to your insurer or adviser before simply cancelling the direct debit. There may be options - reducing the cover amount, extending the term, or switching to a cheaper policy type - that keep some cover in place.

Level Term

A type of life insurance where the payout stays the same throughout the entire term of the policy. If you take out £300,000 of cover for 25 years, the payout is £300,000 whether you die in year 1 or year 24. The premium is fixed too.

Level term is the most straightforward type of life insurance. It is the right choice when the financial need stays constant - protecting your family's living expenses, providing for children until they are independent, or covering a specific debt.

Loading / Rated / Non-Standard Terms

When an insurer charges you more than the standard premium because of something in your health, lifestyle, or occupation. If you have diabetes, for example, the insurer might apply a "loading" of +75%, meaning your premium is 75% higher than someone of the same age without diabetes.

Different insurers load differently. One might add 50% for your condition while another adds 150%. This is why speaking to a specialist broker matters - we know which insurer gives the best terms for your specific situation.

Material Fact / Non-Disclosure

A material fact is any piece of information that could influence an insurer's decision to offer you cover or the terms they offer. Non-disclosure means failing to tell the insurer something material. If you do not mention a diagnosis, a medication, or a relevant family history, the insurer could refuse to pay a claim.

Under the Consumer Insurance Act 2012, you are required to take reasonable care not to make a misrepresentation. You do not need to volunteer information the insurer did not ask about, but you must answer their questions honestly and completely. If in doubt, disclose it.

Medical Questionnaire

A set of health questions asked during the application process. These cover your current health, medical history, medications, family medical history, lifestyle (smoking, alcohol, recreational drug use), height and weight. Your answers determine your premium and any exclusions.

Answer honestly and completely. If you are not sure about a date or detail, say so rather than guessing. Insurers are surprisingly reasonable about honest uncertainty but very unforgiving about deliberate inaccuracy.

Moratorium

An underwriting approach used mainly in private medical insurance where the insurer does not ask about your medical history upfront. Instead, there is a blanket rule: any condition you have had treatment or symptoms for in the previous 5 years (typically) is excluded for the first 2 years. After 2 years symptom-free, the condition becomes covered.

Moratorium sounds appealing because there are no medical questions, but it creates uncertainty. You do not know what is excluded until you try to claim. Full medical underwriting is usually the better option because you know exactly where you stand from day one.

Nil-Rate Band

The amount you can leave to your heirs without inheritance tax being charged. Currently £325,000 per person. It has been frozen at this level since 2009. If you leave your home to direct descendants, there is an additional residence nil-rate band of £175,000.

Both allowances can be transferred between married couples and civil partners. A married couple can potentially pass on up to £1,000,000 before IHT applies - but only if the conditions for the residence nil-rate band are met.

Policy Schedule

The document that sets out the specific details of your policy: what is covered, what is excluded, the cover amount, the premium, the term, the beneficiaries, and any special conditions. It is the single most important document you receive from your insurer.

Read it. Seriously. The policy schedule tells you exactly what you are paying for and what you are not. If anything does not match what you discussed with your adviser, flag it immediately.

Pre-Existing Condition

Any health condition, illness, or injury you had before taking out the policy. This includes anything you have received treatment for, taken medication for, or even consulted a GP about. Pre-existing conditions are the primary factor that affects your premium and any exclusions on your policy.

Having a pre-existing condition does not mean you cannot get cover. Most conditions are insurable - often with a loading on the premium or a specific exclusion. Some conditions make no difference at all.

Premium

The amount you pay for your insurance, usually monthly. Your premium is calculated based on your age, health, smoking status, the amount of cover, the term, and the type of policy. Once set on a guaranteed policy, it does not change.

Premiums are not standardised across the industry. Two insurers can look at the same person and quote wildly different prices, especially if there are medical conditions involved. This is why shopping the whole market matters.

Private Medical Insurance (PMI)

Insurance that covers the cost of private medical treatment - consultations, diagnostics, surgery, and aftercare - allowing you to bypass NHS waiting lists and choose your own consultant. PMI policies vary hugely in what they include and exclude.

PMI does not cover everything. Most policies exclude GP visits, chronic condition management, cosmetic procedures, and dental treatment. The value is in fast access to diagnosis and treatment for acute conditions.

Probate

The legal process of administering someone's estate after they die. An executor applies to the Probate Registry for permission to access the deceased's assets and distribute them according to the will. Until probate is granted, bank accounts are frozen and property cannot be sold or transferred.

Probate typically takes 6 to 12 months. Life insurance in a trust bypasses probate entirely - the payout goes directly to the beneficiaries, usually within days.

Relevant Life Insurance

A tax-efficient life insurance policy paid for by an employer for an individual employee. The premiums are a deductible business expense (saving corporation tax), they do not create a benefit in kind for the employee (saving income tax and National Insurance), and the payout is written in trust so it avoids inheritance tax.

Relevant life is particularly valuable for company directors and higher-rate taxpayers. It is the most tax-efficient way to arrange personal life insurance if you have your own limited company.

Reviewable Premium

A premium that the insurer can increase at set review points (typically every 5 or 10 years). The starting premium is usually lower than a guaranteed premium, but it can rise significantly over time as you age and the insurer reassesses risk.

Reviewable premiums are common in whole of life policies and some older-style income protection. For term life insurance, guaranteed premiums are the standard and generally the better option. A reviewable premium that starts cheap can become very expensive by your 50s and 60s.

Settlor

The person who creates a trust. When you put your life insurance policy in trust, you are the settlor. You decide who the beneficiaries are, who the trustees are, and what the trust terms say. Once the trust is created, the settlor typically has no further control over the trust fund.

Sum Assured

The amount your policy will pay out. Also called the cover amount. For life insurance, it is the lump sum your beneficiaries receive. For critical illness, it is the lump sum paid on diagnosis. For income protection, the sum assured is quoted as a monthly benefit rather than a lump sum.

Getting the sum assured right matters more than anything else about the policy. Too little and your family is not properly protected. Too much and you are paying for cover you do not need. We help you work out the right figure based on your actual financial obligations.

Surrender Value

The amount you receive if you cancel a whole of life or investment-linked policy before it matures. Term life insurance has no surrender value - if you cancel, you simply stop paying and the cover ends. Whole of life policies that include an investment element build up a cash value over time that you can access by surrendering the policy.

Surrender values are often disappointingly low, especially in the early years. Cancelling a whole of life policy to access the surrender value means giving up the life cover permanently.

Term Insurance

Life insurance that lasts for a specific period - the "term." You choose the term when you take out the policy: 10 years, 20 years, 25 years, or whatever matches your need. If you die during the term, the policy pays out. If you survive to the end, the policy simply ends and nothing is paid. It is called term insurance because it covers a defined term, not your whole life.

Term insurance is the most common and most affordable type of life insurance. It is designed to cover a specific need for a specific period - like protecting your family while the children are growing up or covering a mortgage until it is paid off.

Terminal Illness Benefit

A feature included in most life insurance policies that pays out the sum assured early if you are diagnosed with a terminal illness and your life expectancy is 12 months or less (some insurers use 18 months). The money is paid while you are still alive, allowing you to use it however you need.

Terminal illness benefit is included as standard on most UK life insurance policies at no extra cost. It does not increase your premium. It simply means the policy pays out slightly earlier than it otherwise would.

Trust

A legal arrangement where your life insurance policy is held by nominated trustees on behalf of your beneficiaries. The policy is no longer part of your estate, which means the payout avoids inheritance tax and probate. Setting up a trust is free with most insurers and takes about 2 minutes.

There are several types of trust used for life insurance: discretionary trusts (the most common and most flexible), absolute trusts (simpler but rigid), split trusts (for combined life and critical illness policies), and business trusts. We explain which is right for your situation and set it up on the call.

Trustee

The person or people responsible for managing the trust and distributing the money when the time comes. Trustees have a legal duty to act in the best interests of the beneficiaries. You typically name at least two trustees - often your spouse and another trusted family member or friend.

Choosing trustees is important but not complicated. They need to be people you trust, who are likely to still be around when the trust needs to pay out, and who can work together sensibly.

Underwriting

The process an insurer uses to assess your application and decide whether to offer you cover, what to charge, and what to exclude. It involves reviewing your age, health, medical history, lifestyle, occupation, and the amount of cover you want. The underwriter is the person (or increasingly, the algorithm) making that assessment.

Underwriting varies significantly between insurers. One insurer might load your premium by 50% for a particular condition while another offers standard terms. This is the core reason why using a specialist broker - who knows how each insurer underwrites - makes a meaningful difference to the price you pay.

Utmost Good Faith

The principle that both you and the insurer must act honestly and transparently. For you, this means answering all questions on your application truthfully and not withholding material information. For the insurer, it means dealing with claims fairly and not looking for unreasonable technicalities to avoid paying out.

The Consumer Insurance (Disclosure and Representations) Act 2012 modernised this principle. You are now required to take "reasonable care" not to make a misrepresentation, rather than the older standard of disclosing everything. But the spirit is the same: be honest.

Waiver of Premium

An optional add-on that waives your insurance premiums if you are unable to work due to illness or injury. Instead of your policy lapsing because you cannot afford the premiums, the insurer continues the cover for free until you recover.

Waiver of premium typically costs a few pounds per month extra and usually has a deferral period of 13 or 26 weeks. It is worth considering if losing your income would make it difficult to maintain your premium payments. Think of it as insurance for your insurance.

Whole of Life Insurance

Life insurance that covers you for your entire life, not just a set term. As long as you keep paying the premiums, the policy will eventually pay out - because everyone dies. This guaranteed payout is why whole of life is significantly more expensive than term insurance.

Whole of life has legitimate uses: inheritance tax planning (second death policies), providing for a disabled dependent who will always need support, or leaving a guaranteed legacy. But for straightforward family protection or mortgage cover, term insurance is almost always more appropriate and far more affordable.