What is life Insurance/ Life Cover, and who can apply?

Life insurance is a way of providing financial security for dependendants in the event of your death. There are different types, but the policy usually pays out a lump sum or an income when the insured dies.

Anyone between the age of 18 and 64 who is a permanent resident within the UK can apply for life insurance. Life insurance can be provided as either a single policy or a joint policy for you and your partner.

What is the difference between life insurance and life assurance?

Life Insurance : insures the policy holder for a specific period of time. Then if you die whilst the policy is in force, the insurance company pays out the sum assured. However, if you survive to the end of the term, the policy is finished and you will need to get further cover. This type of policy only has value on death.

Life Assurance : With Life Assurance you have the opportunity to invest. A Life Assurance policy joins a guaranteed insured sum with a non guaranteed investment, with the value of the investment being directly linked to the value of the underlying pension fund, the age of the policy and the insurance provider's investment performance.

Are there different policies?

There are two main types of life insurance available – term assurance and whole-of-life insurance. Whole of life insurance is slightly more expensive and provides cover until the policy holder's death. Term assurance is the simplest form of life insurance and is widely available - you simply pay your premiums for a set term, at the end of which the policy is over. If you die within this term your dependants receive a cash lump sum.

There are different types of term assurance ;

Decreasing term insurance : This type of policy is one in which the amount you are insured for decreases at a flat fixed rate over the term. It is often used to protect a repayment mortgage.

Level Term Assurance : This is the simplest form of life insurance whereby the policy holder pays the premium and the insurance provider pays out a fixed lump sum in the event of the policy holder’s death within the specified term

Increasing Term Assurance : Also know as increasing benefit insurance, this is a way to compensate for the adverse effects of inflation over the term of the insurance by increasing the benefits of the plan yearly in line with inflation. No medical checks are required.

Family Income Benefit : These insurance policies pay a regular, tax free, fixed monthly or annual income to your family in the event of your death within the insurance policies term. They are especially attractive to policy holders with families and can be arranged as an add-on to a term life insurance or as standalone insurance.

How much will life insurance cost?

The cost of your life insurance will depend on the type and amount of cover you require. Your monthly premium will also depend on other factors including your health, age, sex and lifestyle choices such as smoking. In general the younger and healthier you are the cheaper your premiums will be, however this is not to say it is expensive for everyone else.

How much insurance is available and will I be taxed?

A popular approach to buying life insurance is to base it on income replacement. For example if you were to die, how much would dependants require in order to survive? Applicants can work out how much they would need for income replacement by multiplying their annual salary between five and ten time, this should provide enough cover for you family to life off.

Other things to take into consideration include the size of your mortgage and any other outstanding debts your may have. The payout received for your life insurance is a tax free lump sum. Life insurance polices are also eligible to be put in trust, shielding them from inheritance tax.

Content by Robert Prime