Life Insurance

There are two main ways a life insurance plan, that pays out on the death of the insured person, can be taken out. This first is where there is no set time scale and this is called a “Whole of Life” plan. It means that for as long as you pay the premiums you will receive a level of cover. However, the level of cover may change as time goes on. The second is a “Term Insurance” policy, and this plan will only last for a given length of time.

Why do I need life insurance? This could be for a number of reasons:-

To protect your family if you were to die. This can be done either by providing a lump sum, or an income (Family Income Plan) that lasts for a given period. Both are paid out TAX FREE. In many cases, plans are taken out to give extra peace of mind whilst the children are growing up.

How much cover should I have? I have never heard of anyone who has said after a claim happened that too much money was paid out but a starting point might be around 10 times your salary as a lump sum. Your Financial Adviser will be able to discuss this in more detail with you.

As nobody knows what the future holds, a very sensible option to look at is a “convertible” term policy. For a modest extra premium, you can guarantee getting future insurance even if your health takes a turn for the worse.

To protect a Debt or a Loan. This is normally done using a “Term Insurance” plan that lasts for the period of the debt. Typically a “Mortgage Protection” plan or “Decreasing Term Assurance” is used. As the name implies, the level of cover gets less as the loan is gradually paid off and is therefore cheaper than a plan where the amount of cover stays at the same level for the whole period.

To protect a Business or Partnership. This is often overlooked and yet can be very important not just for the bereaved family. Further details are listed in our Business Protection section.

To help mitigate Inheritance Tax (IHT). This is a subject on its own, so please look at our Inheritance Tax (IHT) Section for further details.

Millions of people have life insurance, but different companies charge very different rates for the same cover, so to see if you can save money, talk to one of our advisers today. We also recommend using trusts to make sure that the taxman doesn’t take any of the money when a policy pays out, and the money goes to the right people at the right time.

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