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Life Assurance

• Decreasing Term Assurance

  • The least expensive of the Term Assurances, Decreasing Term Assurance does what it says on the label. The level of benefit decreases as the term of the policy runs; the premiums do not however reduce. The premiums are fixed throughout the policy term, and the premium level is lower than that of Level Term Assurance as a result of the decreasing benefit. This type of life assurance is commonly used to protect Capital & Repayment mortgage debt. Typically the policy reduces the protection assuming a Mortgage Interest Rate of 10%. Many are paying mortgage interest at around 5% and, providing interest rates do not go over 10%, the benefit should reduce slower than the mortgage debt, ensuring repayment of the mortgage debt in full. However, there is no guarantee that the level of cover will match the outstanding debt upon a claim.

    • Provides a lump sum on death or terminal illness which can be used to cover outstanding repayments on a mortgage or loan
    • The level of cover reduces each year - in line with the sum you owe
    • If you die within the term of the policy, it will pay out a lump sum, to help clear whatever is outstanding on your debt at that point, however, there is no guarantee that the lump sum paid will enable you to clear your outstanding debt in full
• Increasing Term Assurance

  • This type of cover protects you for a given term for an increasing level of benefit. The amount of life cover chosen at the outset rises annually by a predetermined factor, normally Retail Price Index (RPI). This is known as "indexation". The premium will also increase. By selecting indexation you are protecting the purchasing power of your selected benefit. This may be suitable for family protection although this would depend on individual circumstances and you should seek further advice.

    • works much like the level term insurance, except that the level of cover increases - and usually the premiums too.
    • worth considering if you are insuring for a long term, because increasing prices eat away at the value of a fixed level of cover.
• Family Income Benefit

  • An often-overlooked type of cover, Family Income Benefit protects a level of income for a fixed term. In the event of death the amount of income chosen at the outset will be paid for the remainder of the term of the plan. Often the term is set to protect you until your youngest child is 18 or 21. This protection is not as expensive as you may think.

    Depending on your circumstances, indexation might be an option for this type of plan to protect the purchasing power, although the benefit can be level. If indexation is elected at the outset, the premiums and benefit would rise annually, normally by Retail Price Index.

    Family Income Benefit is one of the least expensive forms of life insurance and differs from most other types in that it is designed to pay the benefit, in the event of death, as an income rather than a lump sum, although there may be the option of taking a lump sum depending on the policy.

    Regular Tax Free Income Payments

    In the event of a claim, income can be paid monthly, quarterly or annually and under current rules the income is tax-free. This makes it ideal for Family Protection where a family are looking to insure the main breadwinner over a specific term, for example to his or her retirement age.

• With-profits Policies

  • Policies that are with-profits give the insured the extra benefit of a possible bonus that is a share of the profits from the funds that the premiums have been invested in.

    How and where the premiums are to be invested is worth establishing if you are going to invest in a with-profits product, such as single premium insurance bonds for example. But as with all long-term investments in the stock market or in interest bearing instruments it is important to stay with them for the long term. That way they have time to build up and "smooth" the short term ups and downs in rates of return. The with-profits endowment policy is also a means of regular long-term saving and has the potential for a good return, but there is no guarantee of the final (maturity) value of the policy.

    Some policies may also benefit from terminal bonuses if they are held for their full term. When choosing insurance products for investment it is important to be aware of what charges, fees or commissions may be attached to them and when profits and bonuses are added to the policies. Some, for example, will be heavily weighted with charges at the beginning of their policy life.

    Once any bonuses have been added, they cannot normally be taken away. Growth and bonuses cannot be usually guaranteed in advance but any bonuses will be added to your sum insured, bringing a possible investment return over the years of your life insurance policy.

    With-profits bonds are usually another way of investing in with-profits funds by paying a single insurance premium.

• Whole of Life Policies

  • A whole of life policy is another policy which does exactly as it says. It covers you for the whole of your life. When the inevitable happens, providing the policy is still in force, it will pay out a death benefit. Although they can provide a surrender value, they should not be used for investment purposes due to the deductions made for the death benefit.

    As payment of the benefit is inevitable Whole of Life policies tend to be more expensive than Term Assurance policies for the same level of cover (it depends on what age you are when you start the plan). Each premium is made up of a mortality element and a savings element. Upon death, a fixed sum is paid to the beneficiary along with the balance of the savings element. The performance of the underlying investment fund for Whole of Life Plans is important, as the cost of future premiums depends on fund performance.

    These policies come in various forms:

    • Non-profit whole life policies - A level premium payable throughout life. It pays a fixed cash sum at the time of death.
    • With profit whole life policies - Same as non-profit policies but the amount paid on death is the sum assured plus whatever profits have been allocated.
    • Low cost whole life policies - These have a guaranteed level of cover that the amount payable on death is the greater of the basic sum plus bonuses or the guaranteed death sum assured.

Health

• Private Medical Insurance

  • It's when you need to make a claim that you realise just how wise investing in health and medical insurance can be.

    With hospital queues still growing, private medical insurance is an appealing, though often expensive, buy.

    And what you pay for is what you get. Premiums are worked out on the basis of age and the type of cover required and there is a wide range of different insurances to choose from.

    At the basic level PMI kicks in when you need specialist treatment or you need to go into hospital. Some policies cover you if the NHS cannot provide treatment within a certain period of time.

    At the luxury end of the market there are policies that cover a wide range of medical services such as dentistry, eye care and even spectacles, although the more a policy covers, the higher the premium will be.

• Critical Illness Insurance

  • It's when you need to make a claim that you realise just how wise investing in a critical illness policy can be.

    Considering just how many lives are affected by critical illnesses such as heart disease, cancer and stroke, it is surprising that more people do not take out critical illness insurance.

    The principle is straightforward; in the event of one or more of the specified illnesses being diagnosed, the insurance company will pay out a lump sum after a specified survival period. Often, critical illness cover is combined with other types of insurance and may even provide an investment element so that, for example, a given sum will be paid out on the death of the insured.

    Note - Critical illness policies should be checked as only some forms of cancer, heart attack and stroke are covered by this type of insurance.