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What is Life Assurance/Insurance?
What types of life assurance are there?
What is critical illness insurance?
What illnesses are covered in a critical illness policy?
What is Mortgage Protection?
What affects the cost of my policy?
Do I need insurance?
Life insurance, or ‘assurance’, Critical Illness insurance and Mortgage protection allow you and your loved ones to relax in knowledge that you’re prepared for the worst.
Life insurance, otherwise known as life ‘assurance’, is meant to provide financial support after death. It is a grim subject but an important one that is about how your family and loved ones, or even business partners, will cope after the inevitable event of your death.
Taking out a life assurance policy is effectively buying a sum of money that will be paid out when you die. Depending on the policy this can be paid in one large lump sum or spread out over a series of payments. How the sum is paid and the cost of the premium varies from insurer to insurer. Top
Whole of life
A whole of life policy will pay out upon the death of the assured whenever it happens. The premiums can be paid throughout life or can cease when a certain age is reached, which is commonly at 75 years old. After this point the premiums cease but the life cover continues.
Whole of life policies tend to be more expensive than term assurance is for the same level of cover. Depending on the type of policy they often carry cash values if you surrender the policy early, meaning that the insurer might buy you out of your policy but only if you agree.
Level term
A level term policy is one that pays out after the event of your death or sometimes in the event that you are diagnosed with a terminal illness. The length is of the policy is determined by you and the insurer and all coverage ends once the term is over or if you cease to pay premiums. If you become sick or disabled or otherwise unable to pay the premiums for health reasons, then some policies may have a ‘waiver of premium’. This would allow you to keep the coverage until its termination even if you can’t afford to pay the premium.
Decreasing term assurance
In a decreasing term policy the overall amount that the insurer would have to pay out upon your death steadily decreases over time. The benefit of such a policy is usually a lower premium cost.
Convertible term assurance
Convertible term assurance is similar to Level term assurance but allows you at any time, at an addition cost, to change your policy or any part of it into whole of life, or endowment assurance. This can be done without any further medical evidence being required.
Family income benefit
A family income benefit policy provides regular tax free instalments of money to the surviving family members specified. If you live to the end of the policies term no money is paid, similarly you lose coverage if you cease paying your premiums.
Death in service benefit
Death in service benefit is a sum that is paid out by your employer. Should you die while in employment the payment will be three or four times your salary. If you die after leaving employment then no payment is made.
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Protection against critical illness is vitally important and should be bought as soon as possible. Every two minuets somebody suffers from a heart attack in the U.K. and 1 in 3 men aged thirty will suffer from a critical illness before they turn 65 and the same is true for 1 in 5 women. Despite this, only 7% of the working population have critical illness insurance.
Critical illness insurance pays a large sum of money upon the diagnosis of a serious illness. The insurer will only pay the sum only once the patient has survived for a given amount of time, which is usually 21 to 30 days. Once the money has been paid, however, it will not be taken back even if the patient dies.
Serious illnesses are increasingly survivable and usually come with a diminished ability to work and continuous required treatment. Critical illness insurance is intended to cover the expenses that such an illness can cause with a tax free lump sum or an income.
When buying the policy, you will have to decide if you want a whole of life cover or a term cover. The whole of life policy will cover you for the rest of your life, however, the term cover only last for a set amount of time that varies from insurer to insurer but is usually 10 to 25 years.
You will also have to decide between guaranteed and reviewable rates. A guaranteed policy will charge you the same premium throughout the life of the policy, whereas a reviewable policy allows the insurer to change the rates. Reviewable policies usually come with a fixed rate for the first five years and are then subject to change.
The policy holder’s advancing age and susceptibility to injury or disease are factored into the policy from the start and does not cause age banding.
If you have a life assurance policy you may think that you don’t need a critical illness policy but don’t make that mistake. Life assurance only pays out when you die, critical illness pays out as soon as you are diagnosed and is there to help you when you most need it. Top
Different insurers have different forms of cover and limits. The Association of British Insurers (ABI) said that cancers, heart attacks and strokes must always be covered as a matter of principle if the policy is to be sold as “critical illness”. The organisation has also listed 23 other illnesses that a critical illness policy should cover, however, these are by no means legally required.
The ABI have, in their Statement of best practice for 2006, also ruled out coverage on several illnesses such as AIDS, certain types of cancer, any illness contracted by unreasonably ignoring medical advice, anything deliberately self inflicted, drug/alcohol abuse and illnesses contracted from living abroad or injuries from playing hazardous sports.
Illnesses will also have to have a degree of severity, which is set out by the ABI.
It is important to contact the insurer and read the documentation to find out the exact coverage of any given policy. Top
Your mortgage is probably the biggest single financial commitment you’ll make and as such it makes sense to protect that investment in the event that you are no longer able to pay for it. Mortgage protection is designed to provide this protection, which works by charging a simple premium that will cost the same throughout the entirety of the policy, and in the event of your death it will pay the remainder of the mortgage. Top
As with all things to do with insurance, risk is the greatest contributor to cost. The more ill or unhealthy you, or your lifestyle, are then the higher your premium will be. Your age, medical history and lifestyle will more than likely be taken into account when the insurer decides what premium to charge you. If you are elderly or smoke then the premium will be higher but if you are young and exercise regularly then it will be lower.
The cost also varies depending on the level of coverage you opt in for and for how long you want the coverage to last. Top
Most people in the U.K. go without any type of life insurance. Statistics from the Chest Heart Stroke Association however, show that most people end up needing it. There is a good chance you’ll experience a life threatening illness or injury before you turn 65, one which may decrease your ability to work, threaten your standard of living or kill you. Top
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