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A-Z of Business Life Insurance

Business life insurance can be relatively simple and easy to set up for company directors and employees. Despite this, insurance providers and industry experts like to create obstacles by using (sometimes unnecessary) jargon. Instead of weaving your way through the minefield, here’s a following list of terms and commonly used in the industry and the relevant translation back into everyday language.

 Actuary

 An actuary is a business professional who can statistically manage the risk and uncertainty associated with investments. They invest on behalf of insurance companies and policyholders and are, therefore, responsible for investing part of a whole life insurance policy.

 Assets

An asset is anything that is owned by a business that holds an economic value. This doesn’t have to just be property and equipment the business owns but can also include specialist knowledge as well as key people within the team.

Beneficiaries

 Your beneficiaries are the people you want to give money to after your death. Essentially, they are the people you really like in life. Normally, people choose their spouse and children as beneficiaries. Alternatively, parents may be the beneficiaries of a policy. But in business terms, a beneficiary can be a business partner, co-shareholders or the business itself.

Critical illness cover

Critical illness policies are designed to pay out a lump sum when the policyholder is diagnosed with a serious illness such as heart disease, stroke or cancer. Standard policies cover around 30 illnesses, but there are more comprehensive packages out there. You can tailor the policy to your preferences, add it on to an existing life insurance policy or take it out on its own.

Death in service benefit

A death in service benefit is a life insurance policy provided by an employer. The payment is normally a multiple of your salary and is paid for by the employer. The payout is tax-free.

Decreasing term insurance

In some circumstances, such as insuring a mortgage, a decreasing term insurance may be more viable. Over time, the level of insurance provided decreases, for example in line with your mortgage payments. This type of policy can be cheaper than level term insurance.

Employee benefits

Employee benefits are benefits provided by an employer and usually paid for by the employer. This can include life insurance, health insurance, dental insurance, death in service, sick pay, pension, gym membership, childcare vouchers and more. Some employers provided a standard package, whilst other employers may choose to create a flexible package suited to the individual.

Financial estate planning

Estate planning is the process of managing what may happen to your estate in different eventualities. The plan anticipates any changes during a person’s life and states how the estate will be disposed of after death, including tax policies, transfer of assets and protection of family members. 

Group life insurance

Group life insurance is a life insurance policy covering an entire group of people. It is typically used by larger businesses and is a single contract covering the entire group. Group life insurance, however, cannot be used by small businesses. Therefore, smaller businesses may benefit more from individual relevant life policies for their employees.

group life insurance

Health insurance

A health insurance policy or private medical insurance policy is an insurance plan that covers the cost of healthcare. Whilst most people have access to NHS services, a health insurance policy can help to get faster access to treatments.

Income protection

Income protection is an insurance policy designed to provide an income if you are no longer able to work due to illness or injury. The policy covers most illnesses and kicks in after a certain amount of time. It pays an income until you are able to start working again.

Indexation

Indexation is used to adjust payments relating to price index, in order to take inflation into account. A business life insurance policy that is index-linked means your payout adjusts in line with inflation. It also can increase your premiums each month. However, it does mean that the value of your life insurance reflects the economic value of the policy when it is claimed.

Inheritance tax

When the family inherit the assets within an estate, tax is required to be paid on anything over the value of £325,000. On anything over and above that amount, inheritance tax is charged at 40%. This includes any property you own.

Key man insurance

Key man insurance or key employee insurance is a life insurance policy designed to protect the business against the loss of a member of the team integral to the success of the business. A key person can be a director, sales manager, head of department or systems specialist. Essentially, anyone that has a unique skillset, important relationship with clients or contributes to company profits.

The policy is taken out by the business and is paid out in the event of the death of the key person. The funds can then be used by the business to pay for any loss of profits as well as recruitment, training and temporary replacement. To find out more about the benefits of key person insurance click here.

Level term insurance

A life insurance policy that pays a lump sum in the event of a death. The premiums are fixed, and the same amount is paid until the end of the policy.

Life cover

Is a benefit that is paid out in the event of a death of an individual. Life insurance is normally taken out to cover any mortgages, debts, protect the business against losing a director or key employee or to protect the family financially.

Maturity

The time when an insurance policy reaches the end of its life. For term life insurance this can be after 5, 10, 20 or 30 years.

Online life insurance

Whilst it’s possible to get quotes for life insurance online, it can be a misleading number. Life insurance is based on your current health status, age, occupation, lifestyle and medical history. Often you will need to speak to an insurance advisor in order to obtain an accurate quote for your life insurance rather than fill out a generic form.

Partnership protection

Partnership protection is a life insurance policy designed for business partners. It pays out a lump sum to a partner if their co-partner has passed away or is diagnosed with a terminal illness. It enables them to buy back the share of the business from the estate and take control of the business to continue operations.

life insurance document

Quotes

Life insurance quotes provide a representation of how much your life insurance will cost each month. The cost of your premiums will be based on your current health status, age, smoking status, medical history and family medical history. Therefore, it’s important to speak to an advisor and disclose any medical conditions.

Relevant life cover

A relevant life policy is designed to provide a tax-efficient death in service benefit for employers. The policy is paid for and provided by the employer. Both parties can benefit from tax relief as no national insurance is required. The premiums can be claimed against corporation tax and the payout is exempt from inheritance tax. The payout goes towards the employees chosen beneficiaries.

Renewable term insurance

A renewable term insurance policy is a level term insurance policy that provides the flexibility to renew the plan regardless of your health status. They usually cost more from the outset but can help to provide longer-term life cover.

Shareholder protection

Shareholder protection is a life insurance policy taken out on the lives of each shareholder by the business. In the event of a death of a shareholder, the business receives a lump sum so that they can purchase back the share of the company from the estate. Shareholder protection can work differently, depending on how many shareholders are involved. Either a shareholder can take out individual policies or take out policies on the lives of their co-shareholders.

Term life insurance

Term life insurance is an insurance policy taken out for a specific length of time. Normally, a term life insurance is taken out until retirement, but it can also be used to cover a mortgage or until you sell a business or increase your savings. A term life insurance is typically taken out for 5, 10, 20 or 30 years.

Trust

When a life insurance policy is written into a trust, it can help to protect the policy. The policyholder chooses who they wish their policy to go to and in what capacity. It allows them to have more control over who gets a share of the policy as well as avoiding inheritance tax.

Trustee

A trustee is a person chosen by the policyholder to take control of how their money is distributed after their death. It is the person responsible for administering the transfer of money to the beneficiaries as per the wishes of the policyholder.

Underwriting

The underwriting process consists of deciding how much coverage should be received, how much risk is involved and, therefore how much the policyholder should pay for the policy.

Whole of life insurance

Whole of life insurance is a life insurance policy with no expiry date. It guarantees a payout in the event of the death of the policyholder. There are different options available for whole of life insurance including investment-linked versions.