Insurance Jargon Buster
Like any walk of life, the insurance sector has plenty of jargon: technical terms
which convey specific information precisely to those in the know but leave everything else utterly baffled. Here's our guide to some of the terms you might encounter.Assurance: This word may appear to be used interchangeably with "insurance", and for most practical purposes they refer to the same thing. The technical difference is that assurance refers to something which is guaranteed to happen. Strictly speaking this means that life cover should be called life assurance, unless the policy only runs for a set period of time (in which case it's not guaranteed the policyholder will die) which should be called term insurance. In practice, the phrase "life insurance" and "term assurance" are both widely used.
Critical illness: This type of cover is designed to protect against the financial effects of a serious illness. The precise definition varies from company to company, but the general principle is that the policy pays out where the illness means the policyholder is unable to work for a long time or permanently.
Endorsement: This is simply a change to an existing insurance policy, such as adding a new beneficiary or changing what is covered.
Endowment policy: This has a separate meaning for insurance than in general finance. In insurance it refers to a policy which pays out either when you die or on a fixed date, whichever occurs first.
Excess: This is the amount of money which will be deducted from any payouts from the policy, effectively meaning the policyholder pays this money. A policy with a higher excess will usually have lower premiums. The excess may apply to each individual claim or to the total of all claims throughout the policy duration.
Joint life/Joint life last survivor: A joint life policy covers two people's lives and pays out when the first one dies. (The most common use is for a couple, with the survivor getting the payout.) A joint life last survivor policy covers two people's lives and pays out when both have died. (The most common use is for a couple, with the payout going to a child.)
Permanent health insurance: This pays out if the policyholder is diagnosed with a long-term illness or disability.
PPI: Payment protection insurance is associated to a specific loan agreement or other credit facility. The insurance will pay out to cover the repayments of the loan if the borrower loses their job or suffers long-term illness.
Surrender value: This is the amount of money a life assurance policyholder will get if they decide to stop paying into the scheme. It will be much less than the full payout value and may appear disproportionately low given the time that has already gone by.
Terminal bonus: This is a bonus which an insurer may pay when a policy is complete, for example if it reaches the end of its term or if the policyholder dies. It's used mainly in with-profits policies, in which policyholders are paid dividends from the company's profits each year. Terminal bonuses are relatively rare these days.
Insurance Jargon Buster
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