Life Insurance - Independent Financial Advice

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       Protecting You & Your Family

What is Life Assurance?

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 tax, and in most instances are actually tax-free.

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 until 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 serious illness or on death.

What types of Life Assurance are there?

The main types of life insurance are:

· Term Assurance: this is the most used form of insurance. It pays out a lump sum if you die during the term of the policy.

· Family Income Assurance: this scheme provides an income for your dependents rather than paying them a lump sum, if you die during the term of the policy.

You should note that the income is only paid for the time remaining on the policy, so you will need to make additional arrangements to go on providing an income after the policy expires.

· Whole-of-Life Assurance: this type of policy is designed to pay out at the time you die whenever that date should be. Therefore as long as you maintain the policy there is a guarantee that on your death the sum assured (level of Life Assurance cover) will be paid to your Estate.
Some policies require premiums to be paid right up until the point of death others have a maximum term for which premiums are payable, where this is the case premiums are normally payable to age 80 or 85

· Endowment Assurance: this type of policy plays two distinct rolls. It provides Life Assurance protection should you die during the term of the policy, which are normally longer than 10 years, but if you survive throughout the term then the policy provides you with a lump sum, often known as the maturity value.

As there is an investment element to these plans the premiums required for similar levels of Life assurance protection are sometimes higher than equivalent Term Assurance or Whole of Life policies.

The premiums for life insurance policies vary according to your personal circumstances, such as your age and previous medical history.

Pension plans - personal or occupational - may include an element of life insurance if you die before you reach the set retirement age on your pension. Often in the case of occupational pension schemes the cover is normally expressed as a multiple of salary.

If your life assurance is arranged through an occupational pension scheme of your current employer, you should seriously consider starting a new policy to replace the cover if you leave your job. This is especially important, as an interim measure, if your new employer only provides Life Assurance protection after you have completed a given period of time, for example a probation period.

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?

As a very approximate rule of thumb you should consider insuring your life for between 5 and 10 times your current salary.

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 to pay a little more and use your policy as a savings plan that pays out whether you die during the lifetime of the policy or if you survive to the end of the policy term?

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.

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 premiums you pay and the amount of the cover on your life both remain constant throughout the term of the policy.

· Decreasing Term Assurance: the amount of Life Assurance protection decreases over the period of the policy, although you continue to pay the same premiums.
This type of policy could be used to pay off an outstanding debt which decreases over a period of time, such as a Repayment mortgage. It could also be used to cover a potential inheritance tax liability.

· Increasing Term Assurance: the amount of cover and the premiums increase each year, generally in line with inflation. This type of cover can be used to provide an income for your dependants, as it is more likely to track the income they would require were you to die.

· Convertible Term Assurance: at the end of the policy, you have the option 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).

These policies normally require you to pay slightly higher premiums than an equivalent level Term Assurance policy. This type of policy may be useful if you believe your health may deteriorate over a period of time.

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. If the second person is not your spouse then you will need to prove that their death would cause you a 'financial loss'.

Why do I have to provide details about my health?

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.

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


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