insurance terms explained

APR

This stands for Annual Percentage Rate. Any firm that lends money is required by law to quote the APR. Introductory rates do not include arrangement fees you may be charged and also don’t reflect any higher rate of interest that your borrowings will ultimately revert to. The APR takes into account the interest on a loan plus and additional charges making it easier for you to compare products. In general, the lower the APR the better the deal.

ASU

This stands for Accident, Sickness and Unemployment insurance. This insurance covers mortgage repayments in case of accident, sickness or involuntary unemployment.

Buildings & Contents Insurance

This is a combined insurance policy that covers the cost of rebuilding or repairing a property and replacing damaged or stolen contents.

Cover Note

This is a temporary certificate that shows an insurance policy is in place.

Critical Illness Cover

This insurance pays out if the holder is diagnosed with an illness covered by the policy.

Decreasing Term Assurance

Decreasing Term Assurance indicates that the sum assured decreases over the term of the policy. This is commonly used to protect a capital & interest repayment mortgage, where the outstanding balance reduces during the life of the borrowing.

Health Insurance

This insurance protects you in the case of sickness or injury.

High Lending Charge

This is a fee that is used to buy insurance to protect the mortgage lender if you borrow more than a given amount. Many mortgage lenders will lend you up to, say, 90% of the value of a property without this fee. But, if you want to borrow more, the lender usually requires you to pay for insurance to ensure that it will recover all its money, even if the property had to be sold for less than the amount of the mortgage

Insurance

An insurance policy provides compensation following a loss.

Level Term Assurance

Term Assurance is a life insurance policy which covers the life of a person in monetary terms in return for a payment, usually monthly, and known as a premium. Term assurance is the cheapest and simplest form of life cover, providing life assurance for a fixed term only. The sum assured is payable only if the life assured dies within that term. There is no investment value to the policy at any time. In the case of Level Term Assurance the sum assured does not change during the term of the policy.

Maxi ISA

This is a tax-free savings vehicle in which you can invest up to £7,000 each year. You can invest either the full amount in stocks and shares or up to £3,000 in cash savings and up to £1,000 in life insurance investments.

National Insurance

A form of tax on salary which funds state benefits.

Premium

The amount paid for insurance cover.

Sum insured

The amount covered by an insurance policy.

Term Assurance

Term Assurance is a life insurance policy which covers the life of a person in monetary terms in return for a payment, usually monthly, and known as a premium. Term assurance is the cheapest and simplest form of life cover, providing life assurance for a fixed term only. The sum assured is payable only if the life assured dies within that term. There is no investment value to the policy at any time.

Underwriting

Where a company looks at known facts such as age and health in order to assess the likelihood of you making a claim on an insurance policy.

Unitised with profits pension

With these pension schemes payments are used to buy units in an insurance company's with profits fund. The value of these increases annually depending on the investment performance and profits of the insurance company.

With Profits Bonds

With Profits Bonds are single premium Whole of Life policies offered by many insurance companies and usually require lump sum investments. The amount of life cover is normally only minimal, and most With Profits Bonds are taken for investment growth and not life cover alone. The investment buys units in the insurer's With Profits fund. This fund invests in a wide range of underlying assets such as shares, fixed interest securities and property. Each year bonuses are added to the sum assured either by an increase in the price of units or by allocation of extra units