Life and protection

Beneficiary. If you have life insurance and die unexpectedly, a tax-free lump sum will be paid out to the person of your choice. This person is called a “beneficiary”. In most cases, people pick their partner or children.

Critical illness cover. Provides cover if you get a specific type of life changing condition.

Death in service benefit. If you are employed, your work contract might include a “death in service benefit”. This means your employer will pay out a multiple of your salary to your beneficiary, if you die unexpectedly.

Existing medical conditions. Any existing or previous medical conditions which you have (or had in the past) when you take out your insurance policy.

Financial adviser. A financial adviser is someone who will speak to insurance companies on your behalf. Their expert knowledge means they should be able to find the best policy for your circumstances.

Income protection insurance. Designed to support you financially if you can’t work due to illness or injury and your income drops. Particularly relevant for anyone self-employed who wouldn’t get sick pay.

Insurance broker. Market experts who may be able to help you find the best insurance product for you at a good price.

Joint life insurance. Some couples choose to take out a joint life insurance policy. This can result in cheaper monthly payments, but will only pay out once. So if one person dies unexpectedly the surviving partner would no longer be covered.

Life insurance. A policy which will pay your dependants a lump sum or regular payments if you die unexpectedly.

Mortgage protection insurance. A type of term life insurance where the level of cover decreases over the term of the policy. It is mainly used to cover mortgage repayments if you die unexpectedly.

Payment protection insurance. Supports you if illness or redundancy means you can’t meet regular payments of your debts.

Premium. Insurance policies are usually paid for in monthly payments called premiums. For example, you might pay £5 per month for your life insurance policy.

Term. The term of an insurance policy is the amount of time it lasts. Terms can range from just a few years, to the duration of your mortgage payments.

Term life insurance. There are two main types of term life insurance: level term and decreasing term. Decreasing term insurance is often used to cover large debts, e.g. mortgages, where the outstanding amount decreases over time, as you pay it back. Increasing term is the opposite: the value increases over the life of the policy. Level term insurance will cover you for a set amount, over a specific period of time of time, such as 10 or 25 years.

Short-term income protection insurance. This type of policy pays a monthly sum, for a set period of time, if you lose your source of income due to illness, injury or redundancy.

Sum insured. The amount of money your insurance company will pay out. For example, if you die unexpectedly five years into a 20 year life insurance policy, your company will pay a pre-agreed sum to your beneficiary.

Waiver of premium. If you are too ill to work and can’t afford your monthly premiums, a waiver of premium option means you would still be covered. Not all insurance policies offer this, so make sure you ask.

Whole of life insurance. A type of life insurance which covers you for the rest of your life, not a set term. It is usually more expensive than fixed term insurance as a payment is guaranteed.

Savings & Investments / Pensions

Direct investments Shares Shares offer you a way of owning a direct stake in a company – also known as equities. Their value rises and falls in line with a number of factors which might include the company’s performance or outlook, investor sentiment, and general market conditions

Investment funds (indirect) Unit trusts and open-ended investment companies (OEICs)Funds managed by a professional investment manager. There are lots of different strategies and risk levels to choose from and they can invest in one or more different asset classes.

Investment trusts Investment trusts are companies quoted on the stock exchange whose business is managing an investment fund, investing in shares and/or other types of investment. You invest in the fund by buying and selling shares in the investment trust either directly or through the products listed in the next table. Once again, there are lots of different strategies and risk levels to choose from.

Insurance company funds Investment funds run by life insurance companies. When you invest through an insurance or pension product (see table below), you often choose how your money is invested. The choice might be from the insurance company’s own funds or into investment funds equivalent to those run by other managers.

Tracker funds Some investment funds adopt a ‘tracker’ strategy. The value of the fund increases or decreases in line with a stock-market index (a measure of how well the stock market is doing). Tracker funds often have lower charges than other types of fund.

REITs These are a special type of investment trust that invests in property. Similar OEICs are called property authorised investment funds (PAIFs).

Investment products (indirect)

How it works Stocks and Shares ISAs A tax-free way of investing in shares or investment funds, up to an annual limit. Many unit trusts and OEICs come pre-packaged as ISAs. Alternatively, you can choose for yourself which investments and funds to put in your ISA.

Workplace pension A way of investing for the future, with a contribution from your employer and tax relief from the government. Your money is invested in pooled funds.

Personal pension A way of investing for the future, with tax relief from the government. You can use it instead of or as well as a workplace pension. Your money is invested in pooled funds.

Investment bonds A life insurance contract that is also an investment vehicle. You invest for a set term or until you die.

Endowment policies A life insurance policy that is also an investment vehicle. It aims to give you a lump sum at the end of a fixed term. Often you choose which investment funds to have in your policy.

Whole-of-life policies A way of investing a regular amount or a lump sum as life insurance. It pays out on death, and is often used for estate planning. Often you choose which investment funds to have in your policy.

Basic personal pensions  Where you make regular monthly payments into a plan usually with a wide range of investment strategies chosen to suit different needs and attitudes to risk. Charges vary.

Stakeholder pensions  Which are a form of personal pension with low and flexible minimum contributions, capped charges and a default investment strategy if you don’t want too much choice.

SIPPs (self-invested personal pensions)  Which tend to be suitable for larger contributions. They give you a large degree of control over the way your pension savings are invested, but this brings extra risks with it if you’re not an experienced investor and their charges might be higher.


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