A Guide to Life Assurance

Why do I need life insurance?

Adding financial burden to the grief of coming to terms with the loss of a loved one is never an easy thing to do and can make coping increasingly difficult.

Among the reasons to take out life insurance could include:

Mortgage repayments – do you wish to arrange for your mortgage to be paid off?
Replacing salary - ensure your family does not fall on hard times after your death.
Replacing childcare – the death of the childcare provider could lead to the need for expensive childcare.
Education expenses – cover for school/university fees after your death.

Whether it’s about leaving your debts behind or ensuring your family can maintain the standard of living to which they were accustomed, it’s clear there are plenty of reasons to look for the best life insurance policy for your personal circumstances. Getting the best quote is an important part of finding the right policy.

Death has always been a difficult concept to accept but we all know the importance of making sure our loved ones are secure when we have gone.

That’s why we’ve compiled an exclusive guide to life insurance. In part two we examine the different types of cover available.

Different types of life cover

Life insurance is simply a policy that pays out a lump sum in the event of the policyholder’s death, with the purpose of protecting loved ones and dependents against financial hardship.

Life insurance is usually available on a single or joint life basis with benefits including paying out on the diagnosis of a terminal illness. If the policyholder is alive when the policy expires no payment is made and, should the policyholder stops paying premiums at any stage, the policy has no value.

There are several types of life insurance:

Level term assurance

designed to pay out a sum of money if the policyholder should die during the policy’s term. The sum assured is guaranteed and remains unchanged throughout the term.

Decreasing term assurance

the sum assured decreases during the policy. It is regularly used to protect capital and interest repayments on a mortgage.

Renewable term insurance

provides an option to continue the policy without a health review on the expiry date.

Convertible term insurance

Level term asssurance with the option to convert to whole life or endowment insurance.

Increasing term asssurance

this form of insurance fights inflation by increasing the sum assured each year.

Index linked term insurance

provides the option for the premium to be increased each year in relation to the Retail Price Index.

Family Income Benefit

This payment is made on your death and will be given to your family in regular payments rather than as a lump sum. The term is chosen at the outset of the policy. This type of plan is often used for families who require a regular income without the added pressure of having a lump sum to worry about.

Critical Illness Cover

When searching for life insurance cover you can also find additional benefits at an extra cost, including critical illness cover.

Critical illness cover is payable on the conclusive diagnosis of a critical illness.

Some of the conditions covered in most benefits include (use these as a guide only):

Alzheimer`s Disease	Angioplasty

Aorta Graft surgery	Benign Brain Tumour

Blindness	Cancer

Coma	Coronary Artery By-Pass

Deafness	Heart Attack

Heart Valve Replacement	HIV/AIDS (under certain circumstances)

Kidney Failure	Loss Of Limbs

Loss of Speech	Major Organ Transplant

Motor Neurone Disease	Multiple Sclerosis

Paralysis/Paraplegia	Parkinson`s Disease

Stroke	Third Degree Burns

Permanent Total Disability

Premiums

Life assurance policyholders pay premiums into a fund from which all claims are paid out. There are two types of premium available – guaranteed and reviewable:

Guaranteed Premiums – The company guarantees to never increase your policy premium.
Reviewable Premiums – You agree that the company can review your policy at set intervals.

Initially reviewable premiums will work out cheaper than guaranteed premiums. However, as time goes by these premiums are likely to be increased and the overall cost will exceed that of the guaranteed premium.

Therefore, guaranteed premiums will typically work out cheaper in the long run, but if you are on a tight budget reviewable premiums may be worth considering in the short-term.

Waiver of Premiums

Waiver of premium is often available at an extra cost - it will pay your premiums if you are unable to work for health reasons. .

What circumstances could affect my premiums?

Unforeseen circumstances can cut life short, although generally people will fulfill an average life expectancy.

However, for certain groups the probability of living to an average age is reduced and as such they are considered to be of a greater risk .

This could lead to higher premiums, exclusions from cover and even result in the insurer declining to insure you. Some of these greater risk groups include:

High-risk occupations

people who work at great heights, the offshore oil and gas industry, Armed Forces personnel, pilots, fishermen, etc

Dangerous sports/hobbies

people who take part in such pastimes are considered a greater life insurance risk. These include aviation, climbing and mountaineering, motor sports, parachuting, bungee-jumping, skiing, snowboarding, horse riding etc.

Poor medical history

People with an existing medical condition are considered a greater risk. Examples could include family history, weight issues, bowel conditions, cancer, high blood pressure, etc.

Smokers

Smokers are considered a greater risk than non-smokers due to proven links between smoking and some cancers (such as lung and throat cancer) and other serious and terminal diseases. Premiums for both life insurance and critical illness cover increase substantially as a result.

Bear in mind definitions of high risk occupations, dangerous sports/hobbies and poor medical history can vary from insurer to insurer. Consequently, it is important to consider as many life insurance quotes as possible to find the best deal for you.

It is also vital to disclose any information which may affect your risk rating because any omitted information can threaten any claim you make in the future.

Finally, here are some important elements to look out for:

Joint Life

This policy is normally written on a first death basis, meaning the policy pays out on the death of the first policyholder.
It will save money initially but has the disadvantage that it will leave the second policyholder potentially try and get a new life insurance policy at an affordable premium in old age. Overall it will work out to be more expensive in those circumstances.

Trusts

If your policy is written in trust then in the event of a claim this means that the money goes directly to the person you nominate.
It also avoids your estate paying inheritance tax which could mean a 40% tax saving.