Financial Insights

About Life Insurance

The right money in the right hands at the right time.

1. What is Life Insurance?

There are two basic types:

• ‘If you die’ policies that have a set term – called Term Insurance policies and …
• ‘when you die’ policies that will definitely pay out because they last for the whole of your life. These are often called Whole Life Assurance policies.

Life insurance is a solid promise of money if you die within the term of the policy, in exchange for a regular payment or premium now.

We believe that life insurance should almost always be held in a trust. We will arrange that for you at no extra cost. (This is just one example of why it is wiser to take advice rather than go it alone.)

It is important that you have the right insurance cover for your particular circumstances. There is a lot to think about, and getting it wrong could have a disastrous effect on your family when they are already suffering from the loss of a loved one. We will help you to choose the right cover, and make the process clear and straightforward.

Contact us now for clear, understandable independent advice on what may turn out to be the most valuable thing you have ever bought for your family.

2. Why should I have Life Insurance?

A life insurance policy will provide the peace of mind that comes from knowing that the people you love, and who depend on you for their food, clothing, heating and place to live, will be able to cope financially if you die.

Don’t forget the stay-at-home parent. You’d be amazed at how much it would cost to employ someone to carry out the everyday tasks of running a home.

So if you are thinking of insuring the person who brings home the bacon, make sure you consider the person who cooks it too!

Life insurance is a way of protecting your dreams for their future. There is no ducking this issue. If you have people who depend on you financially then you almost certainly need life insurance cover.

3. How much do I need?

The amount of life insurance needed can vary enormously from person to person and family to family.

Your mortgage is likely to be your greatest financial commitment and it is vital that your dependents should still have somewhere to live if you die. However, life insurance to cover your mortgage is almost certainly not nearly enough.

Take the time to jot down the costs of daily living. What lifestyle would you like your family to have if you died? What about all those plans for the children?

It takes more money than you might first think! We will help you to work out what you need. We believe it is also important not to pay for more cover than you actually need because that is money that could be used to provide the good things in life, for now and the future.

4. How much will it cost?

Let’s not beat about the bush here – we can’t say unless we know something about you and your needs – but we find it is usually less than people think.

The premium cost will depend on the type of policy, term of the policy, amount of cover, your age, your state of health and your lifestyle (smoking etc.)

If you want a quick quote just give us a call, or use the contact page, with the above information and we will tell you.

Better than that … call us to discuss your situation. We can often put together a package that will cover your needs for less than you might think.

5. Which type do I need?

There are different types of life insurance available, and the type you need depends on your financial obligations and what you want the policy to do for your dependents.

One of the simplest policies is called a Term Insurance policy (an ‘if you die’ policy). This will pay out a sum of money (that you choose) if you die within a fixed period of time. There are variations of this type of policy. Some stay level throughout the term, some decrease over the term and some can even increase over the term to counter inflation. They can either pay out a lump sum or a regular income. Have a look at our descriptions of these policies and think about how they might protect the people you care about.

Whole of Life Policies that pay out a lump sum when you die are also available. Sometimes these are straightforward insurances, and sometimes they are based on investments and have a higher degree of risk.

We are here to help you to put the right policy in place. Call us for clear, understandable and friendly independent advice that puts your needs first.

6. Level Term Assurance (LTA)

Level Term Assurance is simply an insurance policy that pays out the sum assured if you die during the term of the policy. That’s it!

This is commonly used to cover a debt which remains constant for a period of time such as an interest only mortgage.

Please remember that this type of policy never has a cash-in value

7. Decreasing Life Assurance (DTA)

Decreasing Life Assurance provides life cover that reduces at a set rate for a set period of time. This type of policy is often used to cover a debt of some kind; sometimes within a business. It is also useful to protect the recipients of gifts of money that might otherwise be subject to inheritance tax charges. If the liability reduces at a fixed rate for a fixed period then this is most likely to be the right type of policy.

Please remember that this type of policy never has a cash-in value. This (and Mortgage Term assurance) is cheaper than level term cover.

Note! Decreasing Term is not usually suitable for mortgage cover. Mortgages rarely reduce at a constant rate. To be on the safe side you need the guarantee that the mortgage will be repaid if you die. To cover a mortgage, use Mortgage Life Assurance.

8. Mortgage Protection Assurance (MPA)

Mortgage Protection Life Assurance is used to protect your mortgage against the risk of you dying and leaving it behind for your family to continue paying. MPA is only suitable for Repayment Mortgages because the level of cover is designed to reduce as your mortgage reduces over the years.

The reduction scale ensures that there is always enough in the 'pot' to pay off the mortgage if the worst happens, but there will be very little surplus remaining.

The main difference between MPA and Decreasing Term Assurance is that the mortgage policy will be guaranteed to repay your mortgage as it decreases over time irrespective of interest rate changes (there is sometimes a ceiling to this) whilst DTA is not.

Please remember that this type of policy never has a cash-in value. This (and Decreasing Term assurance) is cheaper than level term cover.

Beware! Mortgage life insurance is rarely enough to protect a family. Yes, the mortgage will be paid off – but what about the continuing costs of daily living and the future you had planned for your children?

Give us a call, get clear understandable independent advice and get it right from the start.

9. Family Income Benefit (FIB)

This type of cover provides a monthly income, which is paid out on the death of a partner or spouse for the remaining term of the policy, to enable the surviving mother or father to continue supporting their family.

Because the policy is for a set term, and only pays the income for the overall duration of the policy, the risk to the life insurance company reduces as time goes on before a claim. This reduced risk for the insurer leads to lower premiums and makes this type of policy a very cost effective way to protect a family.

Please remember that this type of policy never has a cash-in value.

We often advise that this type of lower cost policy should be used in conjunction with Mortgage Protection Assurance to ensure that a family has somewhere to live – and something to live on – if the ‘breadwinner’ dies.

10. Increasing Life Assurance

Increasing Life Assurance is an extra option offered by most insurance companies which allows you to protect your Term Life Assurance policy or your Family Income Benefit policy from the effects of inflation. Each year you will be offered the opportunity to increase your amount of cover inline with the retail price index without any further need for medical information. This allows your policy to retain its real value over the years so your family receive a payout of equivalent value in years to come.

Please remember that this type of policy never has a cash-in value.

We usually recommend this option for clients taking out Family Income Benefit. To see if this is appropriate for you – just give us a call or use the Contacts page.

11. Whole Life Assurance

This life insurance has no set term. It pays out when you die, not if, providing total peace of mind that the sum will be paid out when you die – whenever that is.

Whole life policies are often used to provide for funeral expenses or to provide a guaranteed inheritance for children (such policies must be written in trust). They can also be used to mitigate inheritance tax or simply to make sure that a financial cushion is available for the family when you die.

Some whole life policies have guaranteed premiums that will never change, others are based around an investment in which case there is investment risk and the premiums may only be guaranteed for a limited period. Each has its place, and we will be pleased to make a clear recommendation to suit your needs, and that you will understand.

12. What is Terminal Illness Cover?

Most life insurance policies can include something called 'Terminal Illness Cover' which will allow, at the insurance companies discretion, a payout of your policy early if you are diagnosed with a terminal illness where you will die within 12 months.

This is offered as a goodwill gesture by the insurance companies to allow you the opportunity to settle your affairs and make your own arrangements before you die.

It is important to understand that this is not the same as Critical Illness Cover and will only be offered for conditions where your doctor has told you that you will die within 12 months.