Insurance definitions

Insurance has a vocabulary that can seem daunting or confusing. Here we explain the specialist terms you’re likely to come across when considering income protection or life insurance.

Accident

An unexpected or unplanned event or incident often causing damage or injury.

Accidental death

A death caused by an unexpected or unplanned event or incident.

Accidental death benefit

An additional benefit that some life policies pay, over and above the original sum insured, if the policyholder dies as the result of an accident.

Additional premium

An additional amount on top of agreed premium payments as a charge for changes to the existing policy.

Age-based premiums

Premiums that vary according to the age of the insured, typically increasing as they get older.

Annual premium

The amount you pay an insurer each year for your policy.

Any occupation

Insurance that covers you only if you’re unable to work in any capacity (income protection).

Authorised insurer

An insurance company given permission to provide insurance in the UK and supervised by the Financial Conduct Authority.

Beneficiary

A person nominated to receive benefits under a life insurance policy.

Benefit amount

Money paid by an insurer when a claim is accepted.

Benefit period

The maximum time benefits are paid for a single claim. Also known as the claim period.

Benefit term

The length of time the insurance policy is active. Also known as the policy term.

Broker

A person or firm that arranges insurance between its customers and insurers and explains to customers the advantages and disadvantages of insurance products. Also known as an intermediary, agent or adviser.

Claim

The customer’s request to the insurance company to pay out when an insured event occurs.

Claim period

The maximum time for which benefits are paid under a single claim. Also known as the benefit period.

Contract

An agreement between two or more people to do or not to do something, which can be enforced by law.

Cover

The nature and extent of the protection your insurance gives you. Also known as coverage.

Critical illness insurance

Separate or additional cover that pays a lump sum if the insured is diagnosed with a serious illness.

Death benefit

The lump sum paid out to beneficiaries upon the death of the insured.

Decreasing term insurance

A term life insurance policy where the amount of money for which your life is insured reduces steadily every year until the end of the term – in line with a repayment mortgage, for example – while the premium stays the same.

Deferred period

The period for which you are required to wait before benefits are paid out, ranging from a few weeks to several months, depending on the policy. Also known as the waiting period.

Dependant

Someone who is reliant on you, such as a family member, child, wife or husband.

Discretionary benefits

Additional perks provided by an insurer to policyholders which do not form part of the insurance contract and which can be altered, replaced or withdrawn at the insurer's discretion.

Eligibility

The criteria an applicant for insurance must meet in order to qualify for the policy.

Employment and Support Allowance (ESA)

A UK government benefit that provides financial support to individuals, particularly the self-employed, who are unable to work due to illness or disability.

Exclusion

A risk or item specifically not covered by a policy. They can be general, applying to everyone, or personal, applying to your specific circumstances.

Executive income protection

A policy that provides high-level income replacement for executives and key employees if they are unable to work due to illness or injury.

Guaranteed premiums

Fixed premiums that remain the same throughout the policy term.

Guaranteed Insurability

The option to increase coverage at specific life events (e.g., marriage or birth of a child) without further medical checks.

General insurance

General insurance is non-life insurance cover for damage or loss. It includes products such as motor, travel, pet, health and home insurance.

Gross income

Total earnings before any deductions such as income tax and National Insurance.

Group income protection

A policy arranged and paid for by an employer that provides employees with a percentage of their salary if they are unable to work due to illness or injury for an extended period.

House person’s benefit

A reduced benefit level (typically 50%) if you make a claim and become unemployed, a student or you take over full-time housekeeping duties while your claim is still being paid.

Illness

A diagnosable medical condition, disease or disorder, either physical or mental.

Increasing term

A term insurance policy in which the cover goes up every year by a fixed amount. This policy is designed to increase the policyholder’s life cover as their earnings or debt increase. (Also known as increasing cover).

Inheritance tax

A tax that is payable on the estate of a deceased person, including property, money and assets above a financial threshold.

Injury

Physical or mental harm or damage to a person caused by an external force, accident or unexpected event.

Insurance

A financial product sold by insurance companies to safeguard individuals, organisations and property against the risk of loss, damage or theft by paying out money when the insured suffers a loss that is covered by the policy.

Insurance company

A company that creates insurance products to take on risks in return for the payment of premiums. Also known as insurer or provider.

Insured

The person who is covered by the insurance. (Also known as policyholder).

Insurer

See insurance company

Joint life insurance

A policy that covers two people and pays out when the first person dies.

Key facts document

A document that insurance and investment firms are required by the regulator to produce, setting out the main features of a product. Also known as a key features document.

Lapse

When an insurer renders an insurance policy and the cover it provides inactive because the premiums have not been paid or the insured has not met the requirements of the policy.

Level premium

A payment that stays at the same amount throughout the term of a policy.

Level term life insurance

A fixed-term policy in which the death benefit remains the same throughout the term.

Life insurance

A policy that provides a lump-sum payment to beneficiaries upon the policyholder's or the insured’s death.

Long term income protection

A policy that provides continuing financial support by replacing a portion of the insured's income if they are unable to work due to illness or injury, typically lasting until recovery, retirement or the end of the policy.

Own Occupation

Insurance that covers you if you’re unable to perform your specific job (income protection).

Payment break

A policy feature that allows you to pause your cover and your premium payments for an agree period.

PAYE - Pay as you earn

The system under which an employer automatically takes Income Tax and National Insurance contributions from your salary before you receive it and pays them to HM Revenue and Customs (HMRC).

Policy

The insurance cover agreed between the insurance company and customer.

Policy schedule

An outline of the cover provided under a policy, showing details of the policyholder and the kind of cover given.

Policy term

The length of time the insurance policy is active. Also known as the benefit term.

Policyholder

The person or organisation that takes out an insurance policy and pays the premiums.

Pre-existing medical condition

Any health condition you have now or had in the past; have been diagnosed with or are awaiting a diagnosis of; have been treated for or are having treatment for before the start date of any life insurance or income protection insurance policy.

Premium

The amount to be paid by a customer for an agreed amount of insurance cover.

Probate

The often lengthy legal process of distributing a deceased person’s assets.

Protection insurance

Insurance that provides financial security against the risks of illness, injury or death to the person rather than to possessions.

Quote

An estimate provided by an insurer giving the cost of a policy based on the cover required and the risk factors involved.

Regular premium

A premium that is paid at an agreed time, such as once a month or once a year.

Reinsurance

Cover that insurers can buy from other insurers to protect themselves against large or unexpected losses.

Reviewable premium

A premium that can be adjusted periodically by the insurer according to various factors, including changes in risk, market conditions and claims history.

Schedule

A document describing the details of the cover you have based on the information you supply to your insurer.

Single life insurance

A policy that provides cover for one person, with benefits paid to the policy's beneficiaries if the insured dies.

Short term income protection

A policy that provides temporary financial support by replacing a portion of the insured's income if they are unable to work due to illness or injury, typically for periods of up to a year.

State benefits

Government-provided financial support for those unable to work, which may affect or complement income protection benefits.

Statutory sick pay (SSP)

A government-mandated obligation that requires employers to pay their employees a minimum level of financial support when they are unable to work due to illness or injury, for up to 28 weeks.

Suited occupation

Insurance that covers you if you can’t perform a job suitable for your skills and experience (income protection).

Term life insurance

Life insurance that provides financial protection for a specified period by paying a death benefit to its beneficiaries if the insured dies within that period.

Total permanent disability

Some life policies will pay out if the policyholder becomes permanently disabled – the policy then stops.

Trust

A legal arrangement allowing the death benefit from a life insurance policy to be paid directly to beneficiaries without going through probate.

Underwriting

The process insurers use to assess risk and determine premiums, based on factors like age, health, and lifestyle.

Waiting period

The period you are required to wait before benefits are paid out, ranging from a few weeks to several months, depending on the policy. Also known as the deferred period.

Waiver of premium

A policy feature that allows premiums to be waived while the policyholder is claiming, or if the policyholder becomes seriously ill or disabled.

Whole life insurance

Permanent cover that lasts for the policyholder’s lifetime, often including a cash value component as a form of investment saving.

Working person’s benefit

A reduced benefit level payable if you can’t do your normal job but instead carry out other work at a lower wage, to make up those reduced earnings to the level for which you’re insured.