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Life Assurance is a complex subject and only some elements are covered here.
 
WHOLE OF LIFE
 
ENDOWMENT
 
TERM INSURANCE
 
HEALTH-RELATED
 
 
Family
TYPES OF LIFE ASSURANCE
What are the different types?
There are several types and variations of life assurance. The main ones are listed below.

WHOLE-OF-LIFE (WOL)
Pays a lump sum on death, whenever it occurs.
 
The size of lump sum might be fixed or variable.
 
Typical uses are for:
Estate planning for Inheritance Tax,
general financial protection
and to pay for funeral costs etc.
WOL

ENDOWMENT
A savings plan with some built-in life insurance cover.
 
Pays out a lump sum on death if you die during its term or a lump sum on your survival to the end of the term.
 
Could be used for business co-owners' share purchase purposes, for example.
END


LOW-COST ENDOWMENT (LCE)
An endowment with a greater emphasis on protection (the built-in death benefit is higher).
 
Most commonly used for repaying a mortgage. The death benefit is usually about the same size as the relevant mortgage debt.
LCE


LOW-START ENDOWMENT
The premium (cost) starts off lower but increases yearly for a few years.

TERM INSURANCE (TI)
Pays out the benefit if death occurs during the term of the policy (the 'term' being X years or before age Y).
On survival to the end of the term, cover usually just ceases, with no accrued value to the policy - like car insurance.
Because there is no investment element (and also because the term generally does not go beyond age 80), term insurance is the cheapest type of life assurance.
Some variations are shown below . . .
 
LEVEL TERM INSURANCE (LTI)
The size of the potential benefit is fixed.
 
The most frequent use is for family financial protection.
 
Level Term Insurance cover is also valuable in a number of circumstances, such as for business co-owners' protection.
LTI


CONVERTIBLE TERM ASSURANCE (CTA)
Usually level cover with the extra benefit of being able to alter the cover later on - usually with little or no further medical evidence.
 
Under normal circumstances, the right to convert cannot be refused by the life office.
 
The cover might be altered to another term insurance / a whole-of-life policy / an endowment.
 
The cost of the new cover is based upon its type, size of benefit, duration, and your age at the time of converting.
CTA


DECREASING TERM INSURANCE (DTI)
The size of the lump sum death benefit decreases (usually by equal amounts) during the policy's term.
 
A popular use is for family financial protection.
DTI


FAMILY INCOME BENEFIT (FIB)
A type of Decreasing Term Insurance, although it may not look like it.
 
Instead of a lump sum payable on death, the benefit is payable in regular instalments which last until the end of the policy's term.
 
The most frequent use is for family financial protection.
FIB


MORTGAGE PROTECTION PLAN (MPP)
A type of Decreasing Term Insurance.
 
The size of benefit decreases in line with the amount of capital outstanding under a repayment ('capital and interest') mortgage.
MPP


GIFT INTER VIVOS COVER
The size of death benefit decreases in line with the potential Inheritance Tax liability due on death in respect of a lifetime gift which exceeds the Nil-Rate Band.
 
The cover lasts for 7 years.
VIVOS


INCREASING TERM INSURANCE (ITI)
The size of the lump sum benefit payable on death gradually increases during the term of the policy.
 
Increases in the size of cover are generally added yearly.
ITI

There are other variations as well, and the above is only a basic outline.
 
The charts are for general illustrative purposes only.
 

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What about illness rather than death?
As you'd expect by now, there are variations. The main ones are as listed below.
 
CRITICAL ILLNESS COVER (CIC)
This type of insurance would pay a lump sum benefit to you if, during the term of the cover, you survive the medical diagnosis by a month or so of one or more specified serious medical conditions.
The relevant medical conditions usually include:
> heart attack (some forms of),
> cancer (some forms of),
> stroke,
> coronary heart disease,
> kidney failure,
> major organ transplant,
> paralysis,
> multiple sclerosis.
> Other conditions might also be included.
The lump sum could be used to pay off a debt (e.g. mortgage) / for medical machinery / home alterations (e.g. stair-lift) / adapted car (or mobility scooter) / convalescence (or holiday of a lifetime) / etc.
People most likely to need CIC include the Self-Employed and other business owners, and anyone (especially single people) who has a mortgage.
Employers can have a CIC policy to protect against the financial consequences of a key employee suffering a heart attack, etc.
 
INCOME PROTECTION (IP)
Also known as 'Permanent Health Insurance (PHI)'.
This type of insurance pays an income to you after an initial 'deferred' period (e.g. 6 months) of incapacity if a serious accident or illness prevents you from continuing to earn a living during the policy's term.
The income continues for as long as reasonably necessary during the policy's insured term - perhaps even until your planned retirement age.
The income is tax-free for personally-owned policies.
There is usually no benefit payable after you die (cover would just cease).
There are different definitions of incapacitation:
> any occupation (or 'Activities of Daily Living' may be used for house-persons)
> suited / similar occupations
> own / current occupation (this definition might be applied for an initial claim period only).
Some benefit might be offered if you can return to work only on a part-time basis and/or to a lower-paid job. Some insurers allow you to continue cover during a career break.
People most likely to need cover are main breadwinners and anyone who has a mortgage.
Employers can have a 'group' plan for staff, to enable (taxable) salary payments to continue, at say 50% of normal salary.
 
WAIVER OF PREMIUM (WOP)
This is usually an add-on to a policy (for life assurance or regular pension investment).
This cover comes into action after a period of incapacity.
The insurance company will, in effect, pay your associated life assurance premiums or pension contributions for you whilst you're incapacitated.
 
TERMINAL ILLNESS BENEFIT (TIB)
This is usually an add-on benefit to a life assurance policy.
If this benefit is included, the insurance company will pay out the lump sum earlier than otherwise: if you're medically diagnosed as having only a short while left to live.
 
ACCIDENT, SICKNESS & UNEMPLOYMENT (ASU)
Also known as 'Payment Protection Insurance'.
This type of cover would pay you an income after a short initial 'deferred' period (e.g. 4 weeks) of not earning.
The benefit is payable for a few months (e.g. up to 6 or 12).
The most common use is to cover monthly mortgage payments.
Should you be unable to continue working due to an accident or sickness - or become involuntarily unemployed - then the income can help to tide you over for a while.
For Accident, Sickness & Unemployment cover, we usually offer products from only one provider. There are other providers of Payment Protection Insurance (Short-Term Income Protection) and other products designed to protect you against loss of income. For impartial information about insurance, please visit the Money Advice Service website [opens a new window].

FURTHER INFORMATION
Please contact us [opens a new window] if you would like further information.
 
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The editorial here does not constitute personal advice.
It reflects Bernas Coni Warren's understanding of current law and tax practice, and is without prejudice.
No liability shall attach.
Errors & Omissions Excepted.

 
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