Life Insurance is designed to pay out a cash lump sum in the event of the policyholder passing away during the period of the policy. This can be put in place to provide additional family protection, for inheritance tax purposes or to protect a mortgage. The following are the different types of life insurance products available:
- Level Term Assurance – provides a fixed lump sum payment which is tax free and payable on death during the term of the policy
- Decreasing Term Assurance – provides a lump sum payment which is tax free and reduces each year at a flat rate. This is particularly useful if someone would like to protect their capital and interest mortgage which reduces each year
Critical illness protection is specifically designed to pay out a tax free cash lump sum in the event that the policyholder is diagnosed with a critical illness. The critical illness conditions covered vary from insurer to insurer so it is extremely important that the appropriate market research is conducted to ensure that the correct policy is recommended for your needs. There are many policies in the market which do not cover a wide range of critical illnesses. Critical illness cover in most cases is combined with life cover as well providing additional benefits. Typically it would cover conditions such as heart attack, stroke, and certain types of cancers.
For anyone who has a mortgage it is vital to protect the mortgage by putting a life insurance policy in place which would pay out a lump sum which can be used to pay off the mortgage in the event that the mortgage holder dies. The amount of cover will reduce inline with the mortgage balance making a more affordable alternative to level term life insurance.
Income protection insurance pays out when you aren’t able to work for example through ill health or becoming disabled. It pays out a tax free monthly income after you have been signed off from work for a designated period of time until your retirement date or the policy end date whichever is the sooner. The maximum amount of cover that you are able to take is approximately half your current income, and this is to incentivise you to go back to work should you recover.
Family Income Benefit
Family Income Benefit is the lowest cost method of buying life insurance and provides a regular tax free monthly income for your dependants should you pass away, from the time of the claim until the end of the plan term. This type of policy is particularly useful for people who would like to know that there will be a regular monthly income coming into the household without their family having to worry about what to do with a lump sum payment that they would receive with a standard term assurance policy.
Whole of Life Cover
Whole of life cover is a policy which will pay out a lump sum when the policy holder dies. It does not have a fixed term and therefore there is a guaranteed payout provided that the policy remains in force. Whole of life assurance can be an effective inheritance tax planning tool.