Life Assurance

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What types of Life Assurance are there?

 

This product will pay out on the death of the insured person, some policies will pay out up to 12 months before the death of the insured if the insured person has a prognosis of death within 12 months.

There are three products widely available, Term Assurance, Family Income Benefit and Whole of Life.

The length of time a policy is taken out determines the type of life assurance you have.

For example, if you take out a mortgage and you want the life insurance to pay out a lump sum during a specified term, for example 25 years then this is referred to as term assurance because the policy will be for specific period or term.

Level Term Assurance – This is where the benefit stays the same over the period agreed, so if you choose £100,000 of benefit this will stay at £100,000 for the term. The policy can be inflation proofed by having a yearly increase which increases the benefit and also the premium accordingly.

Level Term Assurance can be used to provide a lump sum on the insureds death to provide money for loved ones, replacing the income you would have provided in a lump sum should you have not died. This will help them maintain the standard of living they are used too. Often used in conjunction with Interest only mortgages.

Decreasing Term Assurance – With this policy the benefits decrease over the specified term, widely used for capital repayment mortgages. The reason for this is that the balance on your mortgage reduces over time until fully paid up. Policies vary by the amount they reduce over time and as long as interest rates do not fall outside the rates set in the policy the benefit will cover the balance due on the mortgage.

With both of these types of term policies if you do not die during the term, you will not receive any money back.

Family Income Benefit is similar to Term Life Assurance in that it is based over a specified term. In short it provides a monthly income to loved ones for an agreed period of time in the event of the insureds death. I have produced another link which can be found on our website that explains Family income Benefit in more detail.

Whole of life is as the title would suggest, lasts for the whole of your life and pays out on death.

There are two types of whole of life policies.

BALANCED OR STANDARD COVER.

MAXIMUM COVER.

With balance or standard cover the premiums you pay will stay the same throughout the time your policy is in force. Even if your health should deteriorate over time there will be no increase in payments and the benefit amount will stay the same. A defined fixed lump sum is agreed as the benefit payable by the insurer when you die.

A maximum cover whole of life policy is linked to an investment fund. The insurer does this to try and generate funds for the eventual pay out. Premiums are reviewed periodically, if the investment is not performing as well as the insurer expected premiums could increase or the benefit level could be decreased. These policies may seem cheaper at the outset but over time it is likely the cost could crease significantly.

The main reason for whole of life policies is to cover the tax that may be due on inheritance which is currently at 40% over the threshold. It can also be used to leave an inheritance for loved ones and also to cover funeral costs.

Some whole of life policies can be redeemed before you die but you would need to check the policy terms as the surrender value may be significantly less than you have paid in premiums.

We recommend you speak to an advisor to discuss your personal needs so you get the appropriate product making sure your needs are put 1st.

If you want more information regarding these type of protections please follow the links below.

Level term critical illness insurance provides a lump sum (a specific amount of money i.e. £100,000) in the event of a confirmed diagnosis of a defined critical illness during the term.

The term is the period of time the policy is in force.

Decreasing term critical illness insurance provides a lump sum (a specified amount of money i.e. £100,000 at policy inception or start date reducing to £0 by the end of the term) in the event of a confirmed diagnosis of a defined critical illness during the term.

It’s called decreasing term critical illness insurance as the amount of the lump sum decreases in line with a specified percentage reduction on each policy anniversary.

The term is the period of time the policy is in force.

What is whole of life cover?

Whole of life is as the title would suggest, lasts for the whole of your life and pays out on death.

There are two types of whole of life policies.

Non-profit whole of life insurance, also known as balanced or standard cover.

Investment based, otherwise known as maximum cover.

With balance or standard cover the premiums you pay will stay the same throughout the time your policy is in force.

Even if your health should deteriorate over time there will be no increase in payments and the benefit amount will stay the same.

A defined fixed lump sum is agreed as the benefit payable by the insurer when you die.

An investment based or maximum cover whole of life policy is linked to an investment fund either a with profit or unit linked.

Due to the two options with this type of protection some companies will state that there are three types of whole of life insurance options.

The insurer links the whole of life policy to an investment to generate funds for the eventual pay out.

Premiums are reviewed periodically, after 10 tears, then every 5 years until aged 70 and then yearly.

If the investment is not performing as well as the insurer expected, premiums could increase or the benefit level could be decreased.

These policies may seem cheaper at the outset but over time it is likely the cost could crease significantly.

At You 1st Mortgages, our advisers will only advise on balanced or standard whole of life insurance.

If you have any questions regarding any of the products you find information about on this site please feel free to contact us and we will do everything we can to assist you.

What does family income benefit cover?

Family income benefit is designed to provide an income for the family in the event of the insured death.

Recently insurers have extended family income benefit to include defined critical illness cover.

It is similar to decreaseing life and critical illness cover and taken for a specific term.

Should you die or suffer from a defined critical illness then you or your family will receive an income for the rest of the term.

Most families rely on at least one income, if you chose a benefit of £2000 per month the following explains how it works.

If you took a 25 year term and died or suffered from a defined critical illness five years into the term you or your family would receive a monthly benefit of £2000 per moth for 20 years.

If you were in a position to claim after 20 years then you or your beneficiaries would receive a monthly payment for the remaining 5 years.

The term is the period of time the policy is in force.

If you have any questions regarding any of the products you find information about on this site please feel free to contact You 1st Mortgages and we will do everything we can to assist you.

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