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With so much different terminology used in life and specified illness cover protection plans, I thought it would be helpful to explain some of the terms that are used in your cover options:
Joint Cover: Refers to a plan that has cover on 2 people but only pays out on the first event, e.g. if one of the people named dies, the plan pays out the sum assured but there is no longer cover on the second person (or in the event of a double fatality, only 1 person’s cover is paid out.)
Dual Cover: In this case, both lives are reaslistically covered, so in the event of a fatality, the surviving partner still has cover in place, or in the event of a double fatality, both sums assured are paid out (obviously very relevant if children are left behind!).
Accelerated Illness Cover: This refers to the fact that any specified illness cover in place, if paid out would be an "acceleration" of that portion of the life cover, or in other words, some/all of the life cover paid out early, leaving whatever life cover figure that was in place, now reduced by the amount of specified illness cover paid out.
Independent or Stand Alone: This refers to specified illness cover, that if paid out, does NOT affect the level of life cover in place, so if somebody had €400,000 life cover and €150,000 specified illness cover, in the event of a specified illness €150,000 would be paid out and there would still be €400,000 life cover in place.
Mortgage Protection or Reducing Term: This refers to the life cover (and in some cases, also specified illness cover) that over the period of the chosen term, reduces the level of cover, usually in line with a chosen mortgage amount (as it is designed to clear an outstanding mortgage).
Level Term: This is a type of cover that stays at the same level of cover and premium for the full term of cover (unless indexation is chosen, then the level of cover and also the premium will increase each year by a specified percentage) so you are guaranteed what premium you will be paying for the full term of cover.
Convertible Term: Like level term but also has the addition of a "conversion option" which allows the person(s) covered, to extend the term of cover beyond the scheduled term, without evidence of medical health. E.g. If during a term of cover someone was diagnosed with cancer, normally, if they wish to apply to extend cover, they would be declined. The conversion option allows them to do this irrespective of their medical situation at the time.
Indexation: On protection plans, inexation refers to the option when each year, you can allow the level of cover and the premium to increase by a certain percentage. This is particularly useful if someone does not initially take as much cover as they should at the start. It is also very useful if someone develops adverse health issues, as it allows the cover to increase without having to provide up to date health information. One thing to be careful of is the rates of increase. Companies vary and some increase both cover and premiums at the same rate while some, for example, increase the cover by 5% and the premium by 8%, so in the long run, this could make a huge difference when comparing premiums.
Unit Linked: While many pension and saving plans are unit linked, some protection plans are also. While it gives a small element of flexibility, all unit linked plans have a "premium review" after 10 years, then every 5 years and every year over age 70. This can often result in substantial increases to premiums or forced reductions in cover.
Block Policy: Some lenders, at the time of giving a mortgage, encourage people to use their "block policy" version of life/specified illness cover. While it does the same job as a non-block case, the main difference is that it can never be assigned to a different lender, so if somebody moves mortgage, the same plan could not be used for mortgage protection with the new lender.
Terminal Illness Benefit: This is included in most modern life policies but itIS NOT the same as Specified Illness Cover (aka Serious or Critical Illness Cover). It simply means that if the person covered for life cover has been told that they are not expected to survive longer than 12 months, then the life company will pay out some or all of the life sum assured. Many people are reading this and assuming that they have Specified Illness Cover in place when they, in fact, do not!
Cancer Cover: This is a brand new type of cover available. Unlike specified illness cover, it only covers diagnosis of cancer. It covers the same list of cancers that are covered under specified illness cover but the advantage, is that some people who do not qualify for specified illness cover (e.g. Diabetics) are not automatically declined for Cancer cover.
Income Protection: Income protection is a plan that will pay an income if you are unable to work due to accident or illness and suffer a loss of income. The maximum cover you can have is 75% of your normal earnings, less the current state social welfare payment (if entitled to). Depending on your circumstances, you can choose at what point the payments would be made to you. Typically, this is after 13, 26 or 52 weeks and will continue until either you return to work or reach the age specified (usually 60-65). Tax relief is available on premiums. Premiums are calculated in similar fashion to life and illness cover but also, your occupation class will also be used to calculate the premium. The cover is available to PAYE and self-employed workers.
These are just a few of the common terms that crop up all the time, if anyone has any further questions on this topic, or simply want to understand your own protection circumstances, without any obligation and free of charge, please contact me. Dave.
Excellent thread Dave. Stickied.
You can edit this whenever you want and add anymore terms if need be.
Just added a new addition to the list. Hopefully they all make sense but if not, feel free to ask any questions.
Dave.
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