Summary
There are various types of life insurance cover plan available in the market. Many people are now reaping the benefits of cheaper premiums by moving to pension term assurance (PTA) because of the tax benefits on the cost of this type of insurance arrangement. It is not, however, suitable for all people.
Recently it was revealed that the cost of life cover has fallen big style in recent years. What sort of policy is most suitable for people like you?
Term cover is the cheapest and simplest typeof life insurance plan - you pay a regular premium each month for an agreed value of life insurance for a fixed term that the policy will run for. If you die whilst the policy is in force, it then pays out a tax free lump sum. If the insurance plan comes to the end of its term and you are still alive, no benefit is paid out.
There are several types of term insurance: “level” term is where the payout is a set amount; “decreasing” term, which is usually much cheaper because the sum to be paid out drops year on year. For most clients this type of plan is taken out to protect a mortgage.
“Increasing” term insurance is an option where the amount payable slightly increases each year during the course of the term ; this can be an excellent way of protecting your financesagainst inflation.
Joint life cover is very benefitial for couples who want both of their incomes to help meet the mortgage because a payout is made if either partner were to die.
Family Income Benefit offers the client’s beneficiaries a monthly income from from the date the policyholder dies until the policy comes to the end of its term rather than paying out one cash lump sum.
The value of insurance you need will depend upon your own individual financial circumstances. Most medium and large sized organisations offer a death in service benefit which can sometimes pay as much as 4 times your annual gross salary to your partner if you die whilst being employed. Hence if you are reasonably confident about staying in employment, you may decide that paying for additional life cover with a separate policy was superfluous.
The price of life cover depends on a number of factors, namely the type of policy, the length of its term, and certain health criteria, and certain medical issues - whether you are obese or whether you smoke. Underwriter are also clamping down on obesity in particular.
There are serious advantages to switching to pension term assurance. If you already have a term insurance plan which pays out a tax free lump sum, you can make big savings on your monthly premiums by changing to a pension term policy. The reason is because under new pension laws, most plan holders qualify for tax relief on the money they pay for life insurance if they opt for a pension term assurance (PTA) policy. This type of insurance is basically the same as standard term insurance in so far as it is still protection-only. So it pays out if you passed away within the term but if you survive to the end of the policy, the policy is worthless.
Not everyone stands to gain from moving to PTA, however. For instance, if you purchased your life insurance a long time ago, the higher premiums that you may now have to pay owing to the increase in your agecould well outweigh the benefit of tax relief. Similarly, if you have had a significant illness since you purchased your cover, you will probably be better off remaining with your current insurance plan.
