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Life insurance is an inexpensive means of protecting families and businesses from financial hardship resulting from the death of a breadwinner (eg: mortgage protection) or a key player in a business (eg: business loans from bank).
So life assurance is designed to provide a sum of money when you die. An insurance company pays this amount, often called the ?sum assured?, in return for the payment of premiums, usually a regular monthly amount. A life policy provides a tax free lump sum to help your family and/or other dependants maintain their standard of living if you die. Policies can cover a single life or be on a ?joint life? basis, and may be written for a specific term, or to cover the whole of your life.
What are the different types of life assurance?
Life assurance can be divided into two main types, term and whole of life. Depending upon the type of cover required the sum assured may be increasing, decreasing or level.
What is term assurance?
Term assurance is the simplest form of life assurance available. You choose the amount of cover that you need and the length of time you need it for. If you die during the term then the sum assured is paid out. Alternatively, if you survive to the end of the term the cover ceases. These policies do not normally accumulate a surrender value at any time and there is no payout if you survive until the end of the term. It may be possible, for a small additional charge, to add a conversion option to a term assurance plan. This will allow you to convert your cover at a future date to a new plan, such as an endowment or whole of life policy, without any further medical evidence being required.
What is whole of life assurance?
Like term assurance you choose the level of cover but with whole of life there is no specific term, the policy will run until the day you die. Whole of life cover is more expensive than term assurance, because an eventual claim is certain rather than merely possible.
Where does critical illness cover fit in?
Critical illness cover is a common additional benefit that can be added to a life assurance policy. The critical illness sum assured is payable not on the death of the life assured, but on the conclusive diagnosis of one or more of a range of critical illnesses, such as cancer, heart attack, multiple sclerosis or a stroke.
Why do you need life cover?
If there are other people who are dependent upon you who will suffer financially on your death, you need life assurance. It is usually used to replace lost regular income, to clear outstanding loans or mortgages, and to provide for your children and/or other dependants in the event of your death.
How much life assurance do I need?
This varies from person to person, depending on what you are covering (such as replacing lost income or children's education costs), what term the cover is required for, and whether the benefit is designed to cover regular costs over time or left as a lump sum legacy. This decision can be complex so it's recommended that you contact a Financial Adviser for a detailed consultation.
Should I choose term assurance or whole of life?
Because individual needs vary, there is no easy answer to this question. The choice depends on the amount of life assurance you need, how long you need it for, and the costs associated with this cover. It is always best to consult a well qualified independent financial adviser or select one of the providers shown on the left.
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