Taking out a life protection policy can put financial provision in place for your family in the event of your death. Policies need to match your specific circumstances, which means it’s crucial to choose the right term and sum to insure. The cost can vary between providers and change regularly, so it’s worth looking around to find the one that best suits your needs.
Term assurance may be suitable if you only need cover for a certain period of time, perhaps until your children have moved out, or the mortgage has been paid off.
You decide on how long you want the policy to last for. If you die during this time, it pays a tax-free cash lump sum to your loved ones. However, if you live beyond the end of the term, your plan will have no cash value. There are different types of term insurance available;
With level-term assurance, your policy will pay out the same amount at any time during the agreed period.
Decreasing Term Assurance
The sum insured reduces over the term of the policy, meaning the pay-out will decrease by an agreed amount each year. This could be suitable if, for example, you plan on paying your mortgage off by a set time.
This is another form of decreasing term assurance. It’s structured to replace a regular amount of income for a fixed term in order to replace the income lost when someone dies, rather than a lump sum being paid out. As it’s effectively a decreasing-term assurance paying out a regular tax-free income, it’s often cheaper than level-term lump sum insurance and therefore could be useful when you need to keep premiums to a minimum.
Relevant Life Insurance (Business only)
This is a life insurance policy taken out on your behalf by your employer to provide cover up until your 75th birthday, as a maximum. The premiums are tax-efficient to both the employer and employee, and can be a good alternative to death in service benefits, especially for smaller companies. The benefits are paid out in a tax-free lump sum, with no limits on the amounts that can be insured. Conditions will need to be met to qualify as relevant life with HM Revenue & Customs (HMRC) in order for the appropriate tax benefits to apply. Our experienced financial advisors will be able to discuss this with you further.