Life Insurance Consumer Test
Summary
There are various sorts of life insurance cover cover available in the market. Many people are now experiencing the benefits of cheaper premiums by changing to pension term assurance (PTA) because of the tax benefits available on the cost of this type of insurance arrangement. However it is not suitable for all clients.
It was revealed recently that the cost of life insurance policies has dropped dramatically in recent years. How do you know what kind of policy is best for people like you?
Term policies are the cheapest and simplest typeof life insurance cover – you pay a premium every month for an agreed value of life insurance for an agreed number of years that the policy will be in force for. If you were to pass away whilst the policy was in place, it then pays out a tax free cash sum. If the insurance policy comes to the end of its term and you are still surviving, no benefit is paid out.
There are several sorts of term insurance: “level” term where the payout is a set amount; “decreasing” term, which is usually a lot cheaper because the sum to be paid out reduces each year. Normally this sort of policy is taken out to insure a mortgage.
Another option is “increasing” term insurance where the cover rises a bit each year during the course of the term; this can be an excellent way of protecting your familyagainst inflation.
Joint life insurance policies are very useful for couples who require both of their incomes to help pay the mortgage because a payout is made if either partner dies.
Family Income Benefit (FIB) offers the policyholder’s beneficiaries a regular income from from the date the policyholder dies until the policy ends rather than paying out one cash lump sum.
How much cover you need will relate to your own individual personal circumstances. Most medium and large sized companies offer a death in service benefit which can pay out 3 or 4 times to your partner if you died whilst still in employment. Therefore if you are reasonably confident about staying a long time with your employer, you may conclude that paying for more life insurance with another plan is wasteful.
The cost of life cover depends on a selection of factors, namely the type of policy, the length of its term, and certain health criteria, and certain medical questions – whether you are obese or whether you smoke. Underwriter are also clamping down on obesity in particular.
There are significant advantages to switching to pension term insurance. If you already have a term insurance policy which pays out a lump sum, you can save a lot your monthly premiums by switching to a pension term plan. The reason for this is because under new pension laws, most policyholders qualify for tax relief on the money they pay for life cover if they opt for a pension term assurance (PTA) policy. PTA is basically the same as standard term insurance cover in so far as it is still protection-only. So it pays out if you die within the period the insurance was in force but if you live to the end of the insured period, no payout is given.
Not everyone stands to gain from moving to PTA, however. For example, if you bought your life insurance a long time ago, the more expensive premiums that you may now have to pay owing to the increase in your agecould well outweigh the benefit of tax relief. Similarly, if your medical record has deteriorated since you took out your policy, you will probably be better off staying with your existing life insurance policy.