Life Assurance is often overlooked but remains the single most important contract when considering any financial planning requirement. A life assurance policy will provide a stated benefit upon the holder’s death (sum assured), provided that the death occurs within a certain specified time period.
Level term is the most basic type of life insurance and offers a level amount of cover with the premium normally fixed for the duration of the policy The amount of life cover (also known as the sum assured) is guaranteed for the term (as long as premiums are paid) and a fixed lump sum is paid out if an individual dies within the policy period.
Decreasing term is a lump sum policy that will repay an outstanding balance of the mortgage (also known as mortgage life insurance). This type of life insurance decreases at a fixed rate as the balance of the mortgage is paid off – please note it is the sum assured that reduces and not the premium, which is cheaper than level term from outset.
Your home maybe repossessed if you do not keep up repayments on your mortgage.
Income protection is an insurance policy that pays out if you’re unable to work because of injury or illness.
It usually pays out until retirement, death or your return to work, although short-term income protection policies, which last for one or two years, are also available at a lower cost.
Neither income protection or short-term income protection pays out if you’re made redundant – but they will often provide ‘back to work’ help if you’re off sick.
Income protection is different from critical illness insurance which pays out a lump sum if you fall seriously ill.
This is a variant of level term life insurance. It allows the policyholder to extend the cover for a period of time from the original ending date of the policy.
Increasing benefit is a form of protection against inflation. If you include this option the benefits on the plan will increase each year in line with inflation or at an amount agreed at outset.
Family Income Benefit
Family income benefit pays out a regular annual income (half yearly, quarterly or monthly) in the event of death or diagnosis of a specified critical illness, during a specified period for your dependents.
Whole of Life Assurance
Whole of life assurance provides protection for the whole of your life. This insurance pays a guaranteed sum on the death of the policyholder. This insurance can be without-profits, with profits or unit-linked. In other words, you can choose insurance that pays out on death a guaranteed sum only, the sum plus any bonuses that have been added, or the sum assured plus any additional value from the growth of the funds invested in.
Below are several additional features that need to be considered when reviewing your protection cover;
This kind of life insurance pays out only on diagnosis of the insured person having contracted one of a range of specified critical illnesses and is normally a bolt on the a life assurance policy. There are many illnesses included but it usually includes at least heart disease, stroke, and cancer.
Guaranteed premiums are usually fixed by the insurer and remain the same throughout the policy term.
Reviewable premiums are reviewed regularly, usually every five years, by the insurance company and can be reduced or increased depending upon their claims experience and other factors.
Life Assurance in Trust
Life insurance can guarantee a pay out to your beneficiaries in the event of your death. Placing your policy in trust ensures any payments to your dependents are not delayed and are not normally subject to tax.
The Financial Conduct Authority does not regulate taxation and trust advice.
Waiver of Premium
Waiver of premium is a form of protection which ensures that if you cannot work in your normal occupation because of illness or injury, the insurance company will pay your premiums to maintain the benefits under the policy.