Why do I need life insurance?

Coming to terms with the loss of a loved one is never an easy thing to do and adding financial burden to the grief can make coping increasingly difficult. It can help to support your family after you die, or even a business partner.

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 the primary earner’s salary - ensuring the family does not fall on hard times after your death.

Replacing childcare - the death of the primary childcare provider could lead to the need for childcare expenses.

Education expenses - cover for school/university fees after the death of the primary earner.

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.

Elements to consider

Buying life insurance? Here are some important elements to look out for:

‘Written in Trust’ – 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.

Joint life insurance – This is normally written on a first death basis, meaning the policy pays out on the death of the first policyholder. It will save money but bear in mind that it will leave the second policyholder to 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.

Critical illness – A life insurance policy with critical illness cover will work out much cheaper than two separate policies. Also remember to differentiate between critical illness and terminal illness cover. Most policies will automatically include terminal illness cover but the critical illness policy will pay out the lump sum for a range of illnesses with no life expectancy criteria.

What is Whole of Life

Insurance?

This guarantees the payout of a lump sum when the policyholder dies, at whatever time that may be as long as payments are maintained. The premiums and sum insured are usually guaranteed not to increase for the first ten years. However, they are more expensive as a claim is assured.

Unfortunately we do not yet offer this type of policy through our online service however if you would like us to arrange for someone to contact you regarding this type of policy then please contact us at info@capitalrewardplus.co.uk.

Different types of life cover

Life assurance (also known as ‘life insurance’) is 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 assurance is available on a single or joint life basis with benefits including paying out on the diagnosis of a terminal illness.

Critical illness (this should not be confused with terminal illness) is a policy that pays out a lump sum on diagnosis on a range of illness with no life expectancy criteria.

It should be noted that a joint policy will often work out cheaper than two separate policies, as will combining critical illness with life assurance cover. You should also be aware that if the policyholder is alive when the policy expires no payment is made and, should the policyholder stop paying premiums at any stage, these policies have no value (you will not receive back any money).

The types of life assurance are:

Level term insurance

Level Term Assurance is life assurance that pays out a set amount if you die within the term of the policy.  This is usually used to cover fixed repayment values; for example, an interest only mortgage where the amount you owe remains the same until the end of the mortgage, or to provide a sum to your family to help support them until they can become financially independent.

Decreasing term life insurance i.e. mortgage protection cover –

Mortgage Decreasing Life Assurance is used to cover a repayment mortgage where the amount you owe reduces as you repay it. The premiums will not change during the lifetime of the policy but the amount that will be paid when you die will reduce starting from the amount of cover you specify, and ending at zero by the end of the term.

Critical illness cover

Critical illness cover is assurance that pays out if you are diagnosed with an illness specified within the policy. It is designed to help you adapt if your life is changed by an illness.

The illnesses covered by each policy will differ, so it is important to read the full details of the plan you are considering. The following illnesses are typical examples:

• Blindness – permanent and irreversible;
• Cancer – excluding less advanced cases;
• Coma – resulting in permanent symptoms;
• Deafness – permanent and irreversible;
• Heart Attack – of specified severity;
• Kidney Failure – requiring dialysis;
• Stroke – resulting in permanent symptoms.

Insurers may also exclude some illnesses because you already have them, or are likely to get them because of your health or lifestyle. The premiums are often reviewable, meaning they may change during the term of the policy; although, some providers offer fixed premiums that are guaranteed not to change.

Critical Illness cover is not designed as a replacement for your income.

Decreasing Critical Illness

Decreasing critical illness cover operates in the same way as above but is often considered to cover a repayment mortgage where the amount you owe reduces as you repay it.

The premiums won’t change during the lifetime of the policy (unless you choose 'reviewable' premiums) but the amount that will be paid when you claim will reduce starting from the amount of cover you specify, and ending at zero by the end of the term.

Family income benefit

Instead of getting a lump sum payment, family income benefit pays the insured’s dependant(s) a regular income for the rest of the term. This tends to be ignored by many people but can be a useful and relatively cheap option for people with children or for those that do not want the worry of investing a lump sum for income.

Other features of life assurance

Indexation

This option means the sum assured and premiums will increase each year. This helps protect the benefits against the effects of inflation. This option will add a small amount to the cost of the policy.

Waiver of premium

Taking this option means that if you are unable to work for at least 6 months, then after this time the insurer will pay the premiums for you to maintain your cover for the remainder of your time off work. This option will add a small amount to the cost of the policy.

‘Written in Trust’

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. If you are interested in this option you should note your intention to us.

Whole of Life

This guarantees the payout of a lump sum when the policyholder dies, provided payments are maintained on the policy. The premiums and sum insured are usually guaranteed not to increase for the first ten years. However, they are more expensive as a claim is assured.

Unfortunately we do not yet offer this type of policy through our online service, however, if you would like us to arrange for someone to contact you regarding this type of policy, please contact us at info@capitalrewardplus.co.uk.