Choosing Life Cover

Hordes of insurers are offering UK life cover and although the underlying products are governed by the same rules, the companies dress up their policies in jargon to make them seem different. Basically, any company offering life cover in the UK has to stick to rules policed by industry watchdog the Financial Services Authority (FSA).

Here's a list of common industry terms explained to help you cut your way through the jargon jungle:

What's the difference between premiums and contributions?

Nothing. Both are different names for the amounts you pay the insurance company for your life cover.

Why are my premiums different from my friend's?

Several factors are considered in calculating your premium, including:

• Your age next birthday
• Whether you smoke
• The type of insurance policy
• The term of the policy

If these factors differ between you and someone else, the amount you pay will not be the same.

I have smoked in the past - am I a non-smoker now?

For the purposes of UK life cover, a non-smoker is someone who has not consumed any tobacco products in the past year.

What are critical illnesses?

The list of critical illnesses varies from insurer to insurer, but most have seven core conditions on their list:

• Cancer
• Coronary artery bypass
• Heart attack
• Kidney failure
• Major organ transplant
• Multiple sclerosis
• Stroke

What is terminal illness benefit?

If you are diagnosed as suffering from a terminal illness, then your policy pays out before your death.

What is waiver of premium?

Waiver of premium is a benefit that means the insurer pays your premiums should you become unable to work through illness or disability.

Can two people have a policy together?

Yes. The policy is generally 'joint life, first death', that means the surviving policyholder receives the pay out. More rarely, the policy can be written the other way round - joint life, second death - which means the policy, pays out when the surviving policyholder dies.

Often this is a strategy to pay inheritance tax bills.

What is the difference between guaranteed and renewable premiums?

Guaranteed premiums stay the same throughout the policy term. Renewable premiums are reviewed regularly, often each year, and may rise or fall.

What is a surrender value?

A surrender value is a sum of money the policy is worth if you cash it in before the full term has expired. Not all policies have a surrender value.

Do I have to have good health to receive life cover?

The insurer will consider your personal circumstances and the risk your health represents before making a decision whether to grant a policy. Even if you have poor health, you may still have life cover although the policy may have exclusions and a higher premium representing the increased risk.

Why should I write a policy in trust?

Writing your policy in a trust takes the payout from your estate. This means the funds will often reach your family quicker than if the money is tied up in probate. Putting UK life cover in trust costs nothing and is generally a good idea for most people but you should take advice before signing the trust forms.