Life Assurance is extremely important. We all tend to assume that we will live a long and fruitful life. We do not consider the impact and consequences our death would have on the people most close to us. Maybe in these busy times it is one area of our life that we just do not think about. Who wants to think about the consequences if we are not around to support our family However dealing with such issues provides a little piece of mind knowing that in the event of misfortune your loved ones can be financially protected and avoid and financial hardship!
Most people may already have some form of financial protection some in the form of mortgage protection to ensure that the mortgage is repaid. However it is important to consider the wider financial needs especially if you are the main earner.
Life Assurance - Protecting your Family
There a number of different products currently on the market and
life assurance does not have to be expensive. Over the years with increased medical science life expectancy on the increase and a little more competition premiums have reduced. With the increased competition new innovative products with more flexibility are being used for people with different or specific needs.
Even if you have
life assurance in place already with your ever changing family and financial situation its even more important to review your current arrangement to ensure that your protection needs are fully covered. It may be that your situation has not been reviewed for some time you maybe paying more than you really need too. We can arrange for an independent assessment of your needs with qualified adviser who can discuss your requirement and provide recommendations to suit your circumstances.
Interesting Facts:
- One in three Britons have no life insurance at all while a further one in three have not renewed their life cover for five years and therefore may be underinsured. Source: Association of British Insurers 2007
- There were around 500000 deaths registered in England and Wales in 2007.
- In 2007 there were approximately 25 deaths per 1000 population that died between the ages of 55 and 64 years of age.
- Approximately 100000 people under the age of 65 die prematurely with approximately 15000 under 35 years. Source: Office of National Statistics 2007
Life Assurance FAQs
Most of us have heard of Life Assurance and appreciate that it is a policy provided by a Life Assurance Company that pays out either a lump sum or a series of payments if or when you die. These payments are normally paid without the deduction of any personal income tax and in most instances are actually tax-free.
It is however worth considering that any proceeds from a life assurance will be added to the deceaseds estate. If this takes the overall estate above the nil band threshold for inheritance tax this tax would be payable for any amounts in excess of the threshold.
The proceeds of a Life Assurance policy can be used:
- to pay off a debt such as a mortgage
- to provide an income for your dependents
You pay monthly premiums or an annual sum to the Life Assurance company for either a given time span or in the case of Whole of Life Assurance normally through to death some Whole of Life policies have a maximum age limit on premiums.
Life Assurance policies can be combined with other forms of insurance such as Critical Illness insurance so that you receive the lump sum if you are diagnosed with a specified critical illness or on death. However they generally pay out on one event not both.
What types of Life Assurance are there?
There are four main types of life insurance:
- Term Assurance: The simplest form of insurance which pays out a lump sum if you die during the term of the policy. If you are alive at the end of the term the policy ends and no payment is made. The level of life cover can be level or decreasing This is one of the cheapest life assurance policies you can buy. Term assurance generally has no cash in value. If you stop paying the premium or your cover ends then you will not receive any money. You pay for the protection it provides.
- Family Income Assurance: this scheme can provide either an income for your dependents or a lump sum if you should die during the term of the policy. You should note that the income is only paid for the term remaining on the policy so you may need to make additional arrangements to go on providing an income after the policy expires. Family Income Assurance generally has no cash in value. If you stop paying the premium or your cover ends then you will not receive any money. You pay for the protection it provides.
- Whole-of-Life Assurance: this type of policy is designed to pay out at the time you die whenever that should be. As long as you maintain the policy there is a guarantee that on your eventual death the sum assured level of Life Assurance cover will be paid to your Estate. Premiums may have a review period where the level of cover could reduce or premiums increase.
- Endowment Assurance: Not only do endowments provide Life Assurance protection should you die during the term of the policy but should you survive to the end of the policy term then you may also receive a lump sum. This lump sum is known as the maturity value. As there is an investment element within Endowments higher premiums are required to provide for similar levels of Life Assurance protection than an equivalent Term Assurance or Whole of Life policy.
Premiums are usually paid monthly occasionally annually but must be maintained in order to ensure cover remains in place. The premiums for Life Assurance policies vary depending on a number of factors some of which are the type of Life policy you choose your personal circumstances such as age and medical history whether the premiums are guaranteed or reviewable. Also your choice of Life Assurance Company can have an impact on the level of premium required.
What should I think about when selecting a Life Assurance policy?
Your first consideration should be the level of insurance cover you require. How much money might be needed in order to pay off your debts? How much money would your dependents need to continue to live with the same lifestyle they are currently enjoying? An independent adviser can assess your needs and make specific recommendations that are specific to your own circumstances.
You then must decide on the type of Life insurance you require; do you want a policy that pays out a lump sum or one that provides an income? Do you want cover for a specified term or to cover you indefinitely until you do die?
You are then ready to compare premiums and the various Life Assurance companies. You should also read the terms of the policy to check any restrictions.
If you have any questions about the type and level of cover that is best for you please contact us. We will be pleased to arrange for an Independent Adviser to discuss your needs in details.
Can I have a policy where the lump sum changes?
Within the general definition of term assurance there are a variety of policies.
- Level Term Assurance: the amount of life cover remains the same throughout the term of the policy and therefore when your personal circumstances change it is important that you ensure your cover is still adequate.
- Decreasing Term Assurance: the amount of Life Assurance protection decreases over the period of the policy and makes this type of policy ideal for protecting a debt which decreases over a period of time such as a Repayment mortgage. Generally cheaper than a Level Term policy as the level of protection reduces over a specified period.
- Convertible Term Assurance: you have the option either during or at the end of the policy term to convert to a Whole-of-Life policy or an Endowment Assurance without having to provide revised details about your state of health medical underwriting.
Convertible Term policies normally require you to pay slightly higher premiums than an equivalent level term assurance policy as you are paying more for the option to convert it without the need for further medical evidence. This type of policy may be useful if you believe your health may deteriorate over a period of time.
Reviewable or Guaranteed Premiums?
The majority of Life Insurance companies will offer you two options when considering purchasing a policy and it is worth considering carefully.
Reviewable premiums are generally cheaper than Guaranteed premiums however they will be subject to regular reviews by the Life Insurance company. The advantage of this is that the cost is lower in the early years when you are just starting out. Conversely it is likely that the premium will be increased at each review as the cost of life cover increases as you get older. This could mean that the revised premiums are ultimately more expensive than you can afford just at the time when it may be most necessary. At which time your options are narrowed to either reducing the cover if the policy allows or cancelling the policy.
Guaranteed premium rates ensure the premiums are guaranteed to remain at the initial levels for the duration of the plan unless you choose to include an increase option. The advantage of this is that it provides peace of mind because you can budget on a fixed premium although the initial premium is likely to be more expensive by comparison.
Can I have a joint policy that covers my partner and myself?
The simple answer to this question is YES. These are known as joint life policies which will pay out if either of you should die during the lifetime of the policy.
Do bear in mind that the policy ceases once it has paid out on either you or your partner dying and the cover will end.
If the second person is not your spouse then you need to prove that when you apply for the life assurance an Insurable Interest exists this means that their death would cause you a financial loss.
The Life Assurance company must decide whether or not you are an acceptable risk. If you or any members of your family have had a history of illness they will want to check on your general state of health before deciding what premiums to charge for the insurance cover you require.
In most instances the Life Assurance company will be able to offer terms without the need for you to undergo a medical although they do have the right to request an examination if they feel it is necessary. Just because they request a medical does not always mean they are going to charge you higher premiums
If you have had any health problems or have an unusual occupation or hobby then in some cases it is worth applying to particular companies rather than simply the firm that appears to offer the cheapest rate. Please contact us we would be happy to arrange for an independent adviser to contact you
What happens if I stop paying the premiums?
This does depend upon the type of policy you own. However unless you have an Endowment Assurance or a Whole of Life Assurance that contains an investment element then you are unlikely to receive a return of any of the premiums you have paid. Even in the case of Endowments or Whole of Life plans you may not get back all of the money you have paid to the policy.
In the majority of instances if you stop paying the premiums to your policy the Life Assurance cover will after a given period of time lapse cease to be provided. If you wished to reinstate the policy at a later date then fresh medical evidence would generally need to be supplied to the Life Assurance Company before cover could be reintroduced. Premiums may increase or decrease depending on your particular circumstances.
