Insurance small print. Do you know what it means?
Understand the jargon:
Waiver of premium:
An option with many life and critical illness plans, the waiver is effectively an insurance on your insurance.
It means the monthly premiums for cover will be paid if you are unable to work through accident or illness. Adding a waiver to a policy typically increases the cost of cover by between five and ten per cent.
This allows you to increase the level of cover without the insurer asking for any new information about your current health or lifestyle.
The option is usually linked to certain life events, for example marriage, moving home, or having a child. Guaranteed insurability can be helpful where someone has started cover on normal terms but has subsequently seen their health deteriorate.
It may also benefit those who have gained weight or taken up smoking since first taking out insurance. The maximum extra cover you can buy will be limited to a proportion, typically 50 per cent, of the original sum insured.
Indexation of benefit:
With some long-term protection plans designed to run for 30 years or more, there can be an advantage in ensuring that you protect the value of any payout against the ravages of inflation.
An option with many policies when they are bought is indexation. This increases both the sum insured and the monthly premium in line with inflation.
Both typically rise each year on the anniversary of a policy. Indexation is particularly useful for income protection, which is designed to pay a monthly income until retirement if you cannot work.
It builds in an allowance for rising wages and living costs over time. Hospital porter Joanna Long, 26, bought her first flat last November under a shared ownership scheme.
Terminal illness cover:
This is a feature of many life and critical illness plans. If you are diagnosed with an illness or condition that doctors forecast will claim your life within 12 months, the policy will pay the insured lump sum immediately.
Many critical illness plans come with automatic cover for children of the policyholder.
If a child is diagnosed with one of the specified critical illnesses in the plan, the parents can claim a lump sum. This allows them to take time off work to help care for their child.
The payout is typically a proportion of the sum the adult has insured for. The policy usually covers children up to 18.
This is an option on some critical illness insurance. Usually, if you make a claim on the insurance and are paid a lump sum, the cover is terminated.
With buyback, limited cover continues for between five and ten years after the claim, giving a second safety net.
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