Types of Life Assurance
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Life assurance is used to pay a lump sum or income on the death and/or critical illness of the person assured. This sum of money would be used to repay a debt i.e mortgage or to provide income for a dependent family, partner or spouse.
Whole of Life
This type of policy has no end date and can provide cover for “whole of life”. This type of contract is usually used where an end date is not required i.e inheritance tax planning.
Usually this type of cover is linked to a savings vehicle (see saving and investing). These policies usually have some flexibility and levels of cover and premium can be usually be changed over the life of the policy. As there is usually an investment built in to this type of policy the premiums are generally more expensive than term assurance.
Level Term Assurance
A Level Term Assurance (LTA) is structured to pay out a fixed sum assurance if a death happens at any time during the policy.
For example Mr. Smith has a LTA of £200,000 over 21 years and dies after 19 years of the policy being in force. The insurance company would pay £200,000 to Mr. Smith's beneficiaries. Cover will therfore remain the same throughout the term of the policy
Mortgage Protection
This form of insurance is often taken out in conjunction with a repayment mortgage. During the term of the mortgage the total amount owed to the lender decreases as capital is repaid.
The decreasing term assurance sum assured decreases in line with the amount owing. As such, this is generally cheaper than its level term assurance equivalent.
Decreasing Term Assurance
Term assurance offers a cost effective means of obtaining life insurance and/or critical illness cover, if incorporated, over a specified term.
The sum assured is paid out, if the life assured was to pass away, or be diagnosed with a predetermined critical illness (if included) within the set term. However, unlike level term, the level of cover reduces over the term of the contract.
Family Income Benefit
Family income benefit is a form of temporary insurance that offers a cost effective means of obtaining life insurance and / or critical illness cover, if incorporated, over a specified term. It provides an income for the remainder of the term.
For example Mrs Jones effects a policy for a benefit of £10,000 per annum over 10 years. If Mrs Jones dies after 4 years her beneficiaries would receive £10,000 per annum for the next 6 years. This type of cover is very cost effective as the level of cover in effect decreases over the term.
Life Assurance Options
Waiver of Premium
This will ensure that in the event of you being unable to work due to an accident or ill health for longer than a pre-determined period of time, the insurance company will pay the policy premiums on your behalf.
Indexation
This will ensure that the sum assured maintains its capital worth against the effects of inflation.
Conversion Option
This will enable you to convert your plan to another type of protection plan with similar cover, with your existing insurer, at any time during the term of the policy without any disclosure of further medical information.
Critical Illness Protection
Critical illness protection provides a tax-free payment in the event of a life assured being diagnosed with a pre-determined critical illness, within the agreed term of the policy.
Buy Back Option
This will ensure that in the event of suffering a critical illness, you will be offered the opportunity to retain the life assurance element included within your policy. This potentially offers significant benefits in that an individual will usually find it difficult to obtain new life cover following the diagnosis of a critical illness.
Instant Online Quote
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