Life Insurance Jargon Buster
Declaration of Good Heath
If you wish to re-instate a lapsed policy, your insurer may require you to complete a 'declaration of good health'. The title of the document is misleading, as, of course, your health may not be 'good'.
The requirement to fully disclose all relevant information that existed when you originally took out your policy also applies when you complete a 'declaration of good health'.
Guaranteed Premiums
If your policy has 'guaranteed premiums' the insurer will never increase the cost of your cover, except if your policy has indexed benefits, in which case, it will only increase in line with the indexation.
In Force
Once your application has been assessed by the insurance company, and assuming the terms offered are acceptable to you, your policy can be placed 'on risk'
Once risk has been assumed, your policy is 'in force' and will thereafter pay out the policy benefits should an insured event, (e.g. death, critical illness, etc). happen.
Lapsed Policy
If you do not pay your premiums, your policy will, after a short period of grace, lapse. This means that you are uninsured from that point on, unless your policy has a fund value, in which case it may have a provision for the cost of your insurance cover to be paid out of the fund value until it is exhausted.
Maturity
A policy 'matures' if it has an investment content and a set end date. When the end date is reached the insurance company will pay the fund value to you. This is known as the 'maturity value'.
Paid-up
If your policy has a cash value, then it may be an option to make the policy paid up. This is an alternative to surrendering the policy.
Premiums
The 'premium' is the money you pay for your insurance cover. A premium can be a 'single' one-off premium or could be payable on a regular basis, usually monthly or annually; but occasionally on a quarterly or half-yearly basis.
Re-instatement
If your policy has lapsed, it is usually possible to re-instate the cover for up to 13 months after the date the policy lapsed. A declaration of good health is normally required and possibly additional medical evidence, such as a General Practitioner's Report and possibly a medical.
You would have to pay the cost of any medical evidence. If your insurer allows you to re-instate the policy, you will normally be required to pay the whole of the outstanding premiums.
Reviewable Premiums
If your policy has 'reviewable premiums' the cost of your cover can be increased in future years if the company with which you are insured has heavier-than-expected claims by its other customers. (In theory, if your insurer has lower-than-expected claims, your premiums could be reduced.)
Whole-life policies often have a guarantee the premiums will not be reviewed for at least 10 years.
Other types of policy, such as reviewable premiums income protection policies, can often be reviewed on any policy anniversary.
Sum Assured
This is the guaranteed amount of money which will be paid out in the event of an insured event, e.g. death, critical illness, etc. happening to the insured person. Depending on the type of policy, and how it was set-up, a sum assured can be paid as a lump sum or as an income.
Surrender
An insurance policy, such as certain types of whole life cover, or an endowment, may have a cash value. If you no longer require the policy, it would usually be possible to take the cash value. This in known as 'surrendering' the policy. Depending on the policy conditions, you may or may not be allowed to take out the full cash of your policy if you surrender it.
