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Life assurance, also known as life insurance, is a policy that pays out a sum of money upon the death of the policy holder or insured person. It’s designed to provide financial support and reassurance to the insured’s family after they have gone, allowing them to maintain a similar standard of living. Life assurance can help to pay off the mortgage, replace the deceased’s salary or cover the cost of additional burdens that may arise in their absence such as a requirement for paid childcare. There are various different types of policy, such as: Level term – pays out a set and guaranteed sum of money upon the death of the insured Renewable term – most life assurance policies have an expiry date and will not pay out if the insured is still alive after this date, although it’s possible to obtain a renewable term policy, which will be extended upon satisfactory completion of a medical examination Whole of life term – this type of policy does not expire and pays out whenever the insured dies, no matter how long it is since the policy was taken out (they are, however, more expensive and the premiums tend to increase over time) Decreasing term – a form of mortgage payment protection, in which the sum paid out upon the deal of the policyholder decreases over time (as, over time, the amount of capital and interest repaid means that the total amount still owing on the mortgage is gradually reduced) Increasing term – the sum payable upon the death of the policyholder gradually increases over the term of the policy to help protect the value of the payout against inflation Index-linked term – similar to increasing term policies, this type of policy protects the sum insured against inflation, this time increasing according to the Retail Price Index Pension term – this policy is linked to government-set pension allowances, thereby benefiting from a level of tax relief on the insurance premiums (and pension term insurance policies can be taken out whether or not you actually have a pension fund) Endowment – a form of investment which also provides life assurance, normally used as a mortgage repayment method, in which the premiums are used to invest in stocks, shares and investment funds (the total sum accrued by the end of the mortgage term is used to repay the mortgage, or, if the policyholder dies before the end of the mortgage term, it will pay out a lump sum to their family) It’s possible to arrange payment protection for many life assurance policies, which will guarantee to continue to pay your premiums towards the policy should you be unable to pay yourself for reasons such as ill health or redundancy. It’s also possible to get critical illness cover with life assurance, which provides protection for you and your family while you are still alive if you are diagnosed with a serious illness. There are two methods of premium payment – guaranteed and reviewable. With guaranteed premiums, the provider guarantees never to increase your premium, whereas reviewable premiums are revised and amended by the provider at various points during the policy term. Reviewable premiums tend to be cheaper in the short term, but will increase over time. Guaranteed premiums are therefore the best value for money in the long term, but the type of premium you decide to pay will depend on your financial circumstances and what you can afford to pay. Reviewable term policies can be a good short-term budget choice. Your premiums will be calculated by the provider according to probability and risk. Some people will live for longer than the average life expectancy, whereas others will die sooner than the average – and the sooner the policyholder dies, the more it costs the provider in payouts because fewer premiums will have been paid into the policy. Various aspects of your health, work and lifestyle will therefore be taken into consideration by the provider when calculating your premium. If you are a smoker, have a poor health record or have an existing illness when the policy is taken out, your premiums are likely to be increased, there may be exclusions on your policy, or you may not be able to obtain cover. This may also be the case if you work in a hazardous job, take part in extreme sports or activities, or if you are over 60 and want to take out a policy. Joint life assurance policies are also available and can be cheaper while both insured parties are still alive. However, it’s important to point out that as they pay out upon the first death, the other policyholder will then have to find a new policy and if this happens when they are in old age, their new premiums are likely to be much more expensive – or they may find it difficult even to get cover. This article is copyright protected and is not for republishing |
