9.11.2012

Life Insurance Advice - Is It Necessary

Copyright (c) 2010 Steve Wentworth

This is a general guide on life insurance and is aimed at providing an introduction to this type of insurance. Once read the reader will have a good understanding for what type of life insurance they require to meet their needs. It is suugested that you seek independent life insurance advice from an insurance broker.

What is Life Insurance
Life cover is an insurance product which provides a cash sum if the life assured were to suffer loss of life. The policy maybe taken either joint life first death or on a single life basis. The policy owner must pay regular premiums to the insurer. Unlike home or car insurance the policy owner is not taking out cover to protect a known valuable of tangible value. Rather the policy owner is protecting the family, mortgage or dependents from the consequences of the life assured suffering death. There are many variations of life insurance/life assurance, each having an alternative purposes for use.
1. Level term insurance
2. Reducing term insurance
3. Whole of life

Term insurance
A type of life insurance were the policy owner receives cover from the insurance provider on the life assured for a specified number of years. The minimum term is usually 5 years, the policy owner can choose a term to suit his/her requirements but typically 10, 15, 20, 25 and 30 year terms are chosen.

Level term insurance
Level term insurance is taken out for a fixed amount of cover say 100,000. This amount remains constant at 100K for the whole term of the cover. Therefore if the life assured were to suffer loss of life the payout would be the full amount of 100,000.

Reducing term insurance
Reducing term insurance is taken out with an initial amount of cover say 200,000. The cover amount reduces to 0 throughout the term of the cover. This type of cover is an ideal protection for a capital and interest repayment mortgage. If the life assured were to suffer loss of life at some point within the term of his/her mortgage and life insurance term the payout would be enough to clear the balance of the remaining mortgage. Therefore removing this debt for the remaining family.

Whole of life
Unlike term insurance this type of life insurance is not restricted to a period of time for the sum assured to suffer loss of life. Subject to a valid claim the insurance provider is guaranteed to payout on death of the life assured. Monthly premiums must be continuously paid, therefore the longer the survival the more premiums are paid. If the life assured suffered loss of life after the initial two years the insurer will payout the claim. T his type of insurance is ideally used to cover funeral arrangements, or to cover an inheritance tax liability.

Additional features
There are a number of additional features offered by life insurance companies in connection with a life insurance policy some of these are listed below: -
1. Terminal illness cover
2. Critical illness cover
3. Waiver of premium
4. Trusts

Terminal illness cover
This should NOT be confused with the more comprehensive critical illness cover discussed later. Terminal illness cover means the insurer will payout the sum assured if the life assured is diagnosed with a terminal illness having less than 12 months to live. Therefore the insurer will effectively payout the death benefit early allowing the remaining time to be a little easier. There are often restrictions on this benefit, whereby the policy must not be in the last 18 months, the diagnosis must be a written diagnosis.

Critical illness cover
The insurer will payout the sum assured if the life assured is diagnosed with one or more critical illnesses as defined by the policy. These are required to include seriuos forms of cancer, stroke and heart attack but do include much more. The ABI (Association of British Insurers) have listed twenty three critical illness definitions most of the UK insurance companies adhere to, some of which provide enhanced definitions known as ABI+.

Waiver of premium
This feature allows the premiums to be waived if the policy owner(s) fall sick and are unable to work, its equivalent to a payment protection policy being bolted on to the life insurance, but this is only for the insurance premiums.

Trusts
When taking out a life insurance policy it is advisable to write the policy under trust. This ensures that the policy will payout to the correct people, at the correct time in the correct amounts. Trusts can be complicated so it is advisable to seek independent life i nsurance advice.





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