This blog article will cover what is life cover? and the different types of life cover available. There are many types and features of life cover policies. Here I will give a brief overview of this however, if you are thinking of taking out a plan it may be worth speaking to a Financial Adviser to ensure that you get the right cover for you.
What is life cover?
Life cover is just that. It is insurance that pays out upon the life assured’s (the insured person’s) death.
There are different types of life cover:
- Term Assurance
- Family Income Protection
- Whole of Life
- Death In Service
I will look into each one in turn.
Term assurance is life cover that pays out a pre-determined lump sum upon death. If it is a level term assurance plan, the lump sum amount stays the same throughout the term of the policy. If it is a decreasing term assurance plan, the sum assured (the amount paid out) will decrease over the life of the policy. Decreasing Term Assurance Plans are often used to protect capital and repayment mortgages and are often called Mortgage Protection. You can also have an increasing sum assured.
In both Level and Decreasing Term Assurance, the policy has a “term”. This means that there will be an end date to the plan. This may be at a specific age or a number of years for example to tie in with the mortgage end date. The cost of the plan will depend upon the life assured age and the policy term. Any health issues, whether you smoke and family history will also be taken into account.
Term assurance plans can be structured as joint or single life. A single life would have a single life assured and a joint life would have 2 lives assured. Where it is joint, the plan would either pay out on the first or second death.
Premiums can either be guaranteed or reviewable. Guaranteed premiums ensure that these remain the same throughout the term of the policy whereas reviewable premiums will start lower and tend to increase as the life assured ages. With reviewable policies, as the premium increases, there may be the option to decrease the amount of cover rather than pay a higher premium.
As an example of how much term assurance could cost, level term assurance for a 30 year old male non-smoker of £100,000 with a term of 30 years would cost £6.50 per month (The Exchange, December 2017).
Family Income benefit
Family Income benefit is like term assurance however, rather than paying a single lump sum on death, it will pay an amount annually tax free for the remainder of the policy term. For example, if you had a Family Income Benefit plan with a term of 20 years and an annual sum assured of £25,000 and you died in year 10, the policy would pay £25,000 pa for 10 years until the policy end. The total pay-out would therefore be £250,000.
For example, for a 30 year old male non-smoker Family Income benefit with a term of 30 years with a sum assured of £25,000 would cost £17 per month (The Exchange, December 2017).
Whole of Life Plans
Whole of Life Plans pay out a lump sum on death however unlike Term Assurance, they do not have an end date. Guaranteed Acceptance plans also fall under this heading such as those you see advertised on the TV. These plans are often used to pay funeral costs or to cover inheritance tax liabilities.
Death in Service
Death in Service is life cover provided by employers. This may be paid by your employer or may form part of your benefits package. The cover will be a multiple of your salary and will pay out if you die whilst you are employed by the company (you don’t have to physically be at work when you die).
Life cover pays out an amount or amounts should you die based on specific parameters. Although on face value, it appears to be a simple insurance contract, different policies will have different features and benefits. It is important to speak to a professional who can advise you on the most suitable plan to meet with your requirements.
In my next articles, I will look at the following:
- What is Critical Illness Cover?
- Do I need life cover?
- Do I need Critical Illness Cover?
- Should I review my existing Critical Illness Cover?
- What is Income Protection?
- How Much Cover do I need?
If you would like to discuss your life cover requirements, contact me for a complimentary no obligation initial meeting.