What is Life assurance?
It’s a straightforward and affordable way of helping make sure that your family and loved ones are financially secure in the event of your death.
A Life assurance plan pays out a cash lump sum if the person(s) insured dies during the term of the plan. The lump sum can be used to provide financial support to your family and loved ones, who might otherwise struggle to pay the mortgage, bills and other living expenses without your income.
Having the right level of Life assurance in place gives you peace of mind and your family a financial safety net if they ever need it. There are different types of life assurance, so it’s important to pick the right type for you.
What is Level Term assurance?
With Level term assurance the amount of life cover stays constant through the term of the policy. It is commonly used to provide cover for an interest-only mortgage, where the debt doesn’t reduce over the life of the mortgage. While it is more expensive to buy than Decreasing Term assurance (see below) the difference in price can be fairly small for the additional cover provided, particularly towards the end of the term of the policy.
What is Decreasing Term assurance?
With Decreasing Term assurance the amount of life cover reduces throughout the term of the policy. It is commonly used to cover a repayment mortgage because as the term of the mortgage progresses the outstanding balance of the loan reduces, so does the amount of cover. They are designed to match the way a mortgage balance reduces over time. In the early years of a mortgage, most of the re-payments cover interest and very little capital and as the mortgage term progresses, this changes in the later years to mostly capital and very little interest.
This is usually the cheapest form of life assurance as you only pay for the amount of cover you actually need
Do you get any money back if you don’t die by the end of the plan term?
A life assurance policy has no cash value at any time during the term of the policy unless a claim is ,made. At the end of the term, you stop making payments and your cover ends. It is also worth noting that if you stop making the monthly payments, the cover will cease and again there is no cash value.
Who can apply for life cover?
Anyone who is at least 18 years old and is a UK resident can apply for life assurance. A UK resident is someone who is permanently resident in the United Kingdom of Great Britain and Northern Ireland (excluding the Channel Islands and the Isle of Man)
Can we get joint cover?
Yes. You can apply for one plan that covers you and your spouse, partner or someone you share a financial commitment with. The cash sum is usually payable on the first death of an insured person. If the cash sum is paid, the cover ends.
Subject to acceptance, you can get joint cover with either a level or decreasing term policy.
What is terminal illness?
Terminal illness cover in most cases is included with your life assurance policy and providers cover for you if you were diagnosed with a terminal illness, meaning you can claim on your life assurance before you die. There will be restrictions and terms and conditions, make sure you read your policy documents.
How much cover should I get?
With typical life assurance, there is no limit to the amount you can have other than the ability to afford it. The exception to this is if unrelated people e.g. business partners take out life assurance to cover a joint loan, in which case the amount of cover is limited to the amount of the loan.
Everyone’s needs are different and it depends on your personal circumstances but there are many things to consider like your mortgage, monthly outgoings and financial commitments, your family and the number of children you have that are financial dependent on you.
How long should I get cover for?
How much cover you take out is dependent on what you wish the assurance to be for, if you have taken out a life assurance policy to run along side your mortgage, it will dictate how long the cover is needed. However if you have took out a life policy to secure your family, you may want the term to run until your youngest child reaches 21.
Again, should your circumstances change you should review the cover you have in place or seek independent financial advice.
Which type of cover do you need for your mortgage?
If you have an interest-only mortgage, the outstanding mortgage debt remains constant throughout the mortgage term. In these circumstances, Level term assurance might be suitable to cover this type of mortgage.
Remember that you will need to consider how the mortgage will be repaid at the end of the term.
If you have a repayment mortgage, decreasing term assurance may be appropriate because the amount of cover reduces broadly in line with the decrease in your outstanding mortgage loan.
Is the amount of money paid out taxed?
The money paid out with term assurance life claims are usually free of income and capital gains tax, (although in some cases this varies for higher rate tax payers) but they do form part of the estate and could therefore be liable for inheritance tax.
Can you cancel the plan at any time?
Yes, if you wish to cancel your life assurance policy you can contact the assurance company directly, then once you cancel your direct debit payments, your cover will stop and you’ll no longer be insured.
Should you wish to have cover again in the future, it could be more expensive, or even be declined because you will be older and your state of health could have changed.
Should you cancel the policy, there is no cash value at any time.
Do you give financial advice?
MyLifeInsuranceExpert.co.uk under no circumstances can offer you financial advice, if you are unsure about which life assurance product is right for you, you may wish to consult an independent financial adviser.