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Useful Information

Protection:

Life Insurance as Protection for your family

Loss of income and problems paying debts or meeting tax liabilities can result from loss of life. To help with these costs there are three basic types of life policy - term insurance, whole life insurance and endowment insurance. All these provide you with protection by paying a lump sum on death. People on a limited income may find that term insurance is the best buy. The term (period of cover) can be chosen to cover the length of your mortgage, or the time when children are growing up and expenses are high.

Some families find a regular income more useful than a lump sum. For them a family income benefit policy could be best.

Whole life insurance gives more extensive protection. You know your family is financially protected whenever you should die. Term insurance (or "temporary insurance") gives you financial protection if you die within a specified period known as "the term". This period might be 10, 15 or 20 years although you can arrange policies to cover you for periods as short as one month. If you are alive at the end of the term no payment is made and there is no surrender value - meaning that if you stop paying the premiums the cover ceases and there is no refund of premiums paid.
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Term Insurance

Term insurance is the cheapest form of protection and it can offer high life insurance cover for a low premium. This can be ideal if you have a limited income. Cover can usually be arranged to cover just one person, but in some cases cover will also be available for spouses/partners in the same policy.

There are different types of term insurance:

Level Term - You are insured for the same amount throughout the agreed term.

Renewable Term - You have the option, after a specified period (usually 5 years) to take out a further term policy without the need for any further evidence of health, providing the policy will not continue beyond a certain age (often 65 or more).

Convertible Term - You can convert the policy to a whole life or endowment insurance without giving further evidence of your state of health.  If you decide to convert, the new policy will usually cost the same as a normal whole life or endowment policy based on your age at the date when you exercise the option. If you have a young family and a limited income these policies might be best. Not only do they provide cheap life cover at the outset, but they give you valuable options in later years if your income has risen or your health has declined.

Pension Term - Similar to level term assurance but attracts tax relief on the premiums you pay. Can be linked to your pension plan and normal retirement date.

Decreasing Term - The sum insured reduces by a fixed amount each year, decreasing to nil at the end of the term. The premium will normally stay the same throughout the term.

These policies are usually used to cover a mortgage or other loan as they pay any outstanding balance of the debt if you die early. They can also protect a liability to Inheritance Tax on gifts to others. Remember, though, at the end of the term nothing is payable and there is no surrender value.

Increasing Term - The sum insured and premium increase each year by a fixed percentage of the original sum insured. These policies are designed to increase your insurance protection as your earnings increase.

Family Income Benefit - If you die during the term of the policy a regular income is paid to your dependants for the rest of the term. The income can be paid monthly, quarterly or yearly. Some policies provide an income which increases each year at a fixed rate - say by 3% or 5%.
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Whole Life Insurance

This pays the sum insured whenever your death occurs. Whole life insurance is not limited to a specific period like term insurance. Premiums are usually more expensive because it is certain that the insurance company will eventually pay the sum insured. With some policies you will have to pay the premiums until you die, but with others you may not have to pay premiums any more once you reach a chosen age - say 65 or 80 - but the insurer will pay the sum insured when you die. In these cases the policy is then known as "paid up". Whole life insurance can be arranged with or without profits or can be unit-linked.