Life Insurance Types

Level Term Assurance .

This is the most straightforward type of life insurance policy. It provides a payment of the sum assured if death occurs during the term of the policy. The term is the length of time selected for the life cover to continue.

The term and sum assured must be selected at the time the policy is taken out. Such policies provide no savings element and are intended only to provide protection against early death. It is one of the cheapest forms of life insurance.

An IFA will be able to provide more information.

Pension Term Assurance

This is very similar to level term assurance. The only real difference is that tax relief may be obtained on the premiums paid. To qualify for this tax relief you must not be a member of a company pension scheme and the amount on which relief may be obtained is also limited to 5% of your "net relevant earnings".

An IFA will be able to provide more information

Increasing Term Assurance

This is very similar to level term assurance, the difference being that the sum assured increases at a pre-determined level at regular (normally annual) intervals. In most though not all cases, the premium payable also increases.

An IFA will be able to provide more information

Convertible Term Assurance

This is the same as a level term assurance except that it has the additional benefit of being able to convert to another type of contract at any time whilst the policy is in force.

The conversion may take place regardless of the state of health of the insured at the time and the converted policy may be able to run for a longer period than the existing contract.

It can therefore be of great benefit if a completely new policy cannot be effected because of poor health. It is normally only a little more expensive than a level term assurance.

An IFA will be able to provide more information

Renewable Term Assurance

This is similar to convertible term assurance. It is the same as level term assurance except that it has the additional benefit of being renewable at the end of the existing contract.

The renewal may take place regardless of the state of health of the insured at the time but unlike with convertible term the period of the renewed contract may be limited ' to age 60 for example.

An IFA will be able to provide more information

Mortgage Protection/Decreasing Term Assurance

A decreasing term assurance pays out only in the event of death during the term of the policy. The amount payable on death will depend on how long the policy has been in force as the sum assured reduces each year.

The reduction may be by an equal amount each year but most policies reduce to coincide with the capital outstanding on a repayment mortgage.

The actual amount payable under the policy will be set out in the policy document and is normally unconnected with the actual repayment mortgage. So if interest rates fluctuate during the mortgage the sum payable may not be the same as the outstanding debt.

In some cases policies are taken out on the assumption of higher rates of interest than actually apply so the amount payable is occasionally slightly higher than is required to pay off the loan.

An IFA will be able to provide more information

Family Income Benefit Assurance

This provides an income (as opposed to a lump sum) in the event of death. The income is payable from the date of death until the end of the policy term. It is normally possible for the beneficiaries to elect to receive a lump sum as opposed to an income in the event of death so is very similar to a decreasing term assurance.

An IFA will be able to provide more information

Whole Life Assurance

This is significantly different from a term assurance policy as it provides a lump sum payable on death whenever that occurs and not only if death occurs during the period of the contract. It also has the benefit that if premiums are stopped for any reason then a surrender value is payable.

The amount of this surrender value will depend on the type of whole life policy and the number of premiums paid. It is however considerably more costly than a term assurance contract for the same sum assured.

There are many types of contract available. Some are useful savings vehicles in their own right whilst others emphasis the protection element. Some provide considerable flexibility whilst others are more limited.

An IFA will be able to provide more information

Critical Illness Insurance

This provides payment of a lump sum in the event that the insured person is diagnosed as suffering from one of the specified illnesses covered by the policy. The illnesses covered vary from company to company.

The period of cover may be limited to a set period or carry on throughout the life of the insured. Many policies are written in association with contracts providing payment on death with the sum insured then being paid either on death or earlier diagnosis of an illness.

An IFA will be able to provide more information

Permanent Health Insurance

This provides an income to the insured in the event that they are disabled by reason of illness or accident from working. Contracts normally include a waiting period (of say 3 or 6 months) from disability until the income becomes payable.

The income is normally payable until the insured returns to work, the period of cover ends or the insured dies but some policies limit the period for which the benefit is payable even in the event that the disability still exists.

The definition of disability to work may vary between the insured being able to carry out his own occupation, one for which he is suited or any occupation.

An IFA will be able to provide more information

Long Term Care Insurance

This provides a regular income (or in rare case a lump sum) payable to assist with care fees. The benefit is payable when the insured is diagnosed as being unable to carry out a number of normal daily activities such as washing, dressing and eating unaided.

The premiums may be payable by regular payments or (specifically where cover is required immediately) by payment of a lump sum.

An IFA will be able to provide more information

Last Updated: November 2007 © Moneyextra.com

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