Life assurances were designed to provide funds in the event of death (perhaps for dependants) and written properly could be used to reduce the impact of inheritance tax.

With greater chances of survival these days, critical illnesses have become more of a concern; cover has been bolted onto many life policies.

TERM ASSURANCES

These are assurance policies where you have cover for a fixed duration (term). There is no investment so if you survive the term there is no surrender value. They are often used to cover fixed liabilities such as mortgages. Recently, many providers have introduced Critical Illness cover to term policies. Please be aware that there are 2 types of policy for the options above; reviewable and guaranteed. With guaranteed policies, the premium cannot be altered by the insurers.

The main types of Term policies are:

Level Term Assurance
Here there is a lump sum cover that remains constant throughout the term. It is possible to add ‘indexation’ cover to ensure the benefit keeps up with the cost of living.

Decreasing Term & Mortgage Protection Policies
These are policies where the sum assured decreases over time. Most commonly used to cover mortgage debts where the outstanding loan decreases with time.

Pension Term Assurance
These are term assurances which obtain tax relief on premiums. It is important to be aware of your Pension Lifetime Allowance, because if you exceed this you will suffer a tax charge of 55% on the excess. It is wise therefore to discuss this with your adviser. From 6th December 2006 tax relief will not be guaranteed on new pension term policies so most providers have removed them from their range.

Family Income Benefit
These are term assurance policies specifically designed to provide an income during a fixed term from the date of death until the end of the term. This could be useful for parents with dependant children for school fees etc.

OTHER LIFE POLCIES

Whole of Life Policies
These are an open-ended investment linked insurance plans. You are guaranteed your cover for ten years, after which point the plan will be reviewed, i.e. the investment performance and cost of insurance. Because they are open ended, whole of life policies tend to be more suitable for cover that is required for potentially longer than a specific term. Because of their structure they usually cost more. This means if stopped earlier, there could be a surrender value.

Endowment Policies
These are policies that combine Term Assurance with investment and were often used to pay off mortgages. They have lost their popularity because of low investment yield and in some cases, miss-selling of poorly designed contracts.

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