Family & Personal
People sometime say I don?t need life assurance because I don?t have any dependants. Well, whilst that may be so for some people, it is not necessarily what life assurance is about! Life assurance is about life ? an assurance whilst you are still living! Life assurance is also not about which policy is the cheapest! It all depends on your circumstances, objectives and needs.
There are many different types of assurance products linked to the life of the policyholder and so many life assurance companies with similar offerings that expert advice can be invaluable. The key variants are as follows:
Term assurance
In its simplest of form, in exchange for paying a premium (monthly, annually or as a one-off), the insurance company will by way of a binding legal contract agree to pay out a certain sum if the insured dies before a certain date.
If the policyholder does not die within the term, the policy merely ends. In such circumstances, there is no cash payout of any sort. These policies are usually cost effective to buy and they perform the useful function of providing protection for those who benefit from the policy, such as family members or creditors, if the policyholder dies.
Endowments
These are similar to Term assurance in the sense that they have a pre-defined end date and a certain amount of life assurance cover which pays out on your death if this occurs first. However, they are also different from a Term assurance because they combine life assurance with long term savings and investment. They work on the basis that the owner of the policy pays regular premiums during the term of the policy and when the term of the policy expires, a lump sum is paid out, usually free of income and capital gains tax when maintained to the end of the term. The lump sum may then be used for the purpose for which it was intended for example fund children?s higher education, repay part or all of the capital borrowed on an interest only mortgage etc. The protection element pays out a lump sum if the policyholder dies within the term.
Whole-of-life policies
Unlike Term assurances which provide valuable cover for a specified time period, whole-of-life policies provide continuous cover for the whole of the insured's life. They are generally more expensive than term assurance because there is the certainty that the policyholder will die at some time and that the insurer will have to pay out money if all premiums have been paid.
The mechanics of these policies is that they contain an element of protection (the assurance) and investment (money) invested into a fund(s) to grow. The benefit payable on death will be either a lump sum known as the sum assured or the cash value of the invested fund, whichever is higher. There are also different types of whole of life assurance policies such as With Profits, Without profit, Unit linked, Flexible and Universal.
In summary, life related assurance policies are all about the sort of benefits you want from them, over what period and what additional rider benefits you consider important to your needs. If your objective is basic protection for your loved ones when you die, then the costs can be quite modest, often from a few pence a day and the policies quite straightforward although there can be additional considerations to take on board such as the need to write such policies under a Trust Deed.
Life assurance is not always easy to understand but it is an important ingredient and often the bedrock in many people's personal financial plan, strategy and portfolio.
Legal disclaimer
These pages provide generic information about various aspects of financial services advice that we provide as well as possible areas of clients? financial planning needs. We hope they are helpful to you but they do not, on their own, add up to proper investment advice and we cannot take responsibility for anything you do in reliance on them without further discussion with us. Please do not make a decision based upon the information contained within these pages alone. They are not detailed or comprehensive enough to enable you to make an informed decision which is tailored to your circumstances and needs. Please contact us now for tailored advice.