March 03, 2010
Summary
There are various categories of life insurance cover cover available in the market. Many people are now experiencing the benefits of lower monthly premiums by moving to pension term assurance (PTA) because of the tax relief on the cost of this type of insurnace plan. However it is not suitable for all clients.
It was revealed recently that the cost of life insurance policies has dropped big style in recent years. How do you know what kind of policy is best for people like you?
Term policies are the cheapest and simplest typeof life insurance plan - you pay a premium every month for a set value of cheap life insurance for an agreed number of years that the policy will be in force for. If you were to pass away whilst the policy was in place, it then pays out a tax free lump sum. If the insurance plan reaches the end of its term and you are still alive, nothing is paid out.
There are several categories of term insurance: “level” term where the payout is a set sum; “decreasing” term, which is always slightly cheaper because the sum to be paid out drops every year. Normally this type of policy is taken out to protect a mortgage.
Another option is “increasing” term insurance where the cover slightly increases each year during the course of the term ; this can be a good way of protecting your financesagainst inflation.
Joint life plans are very benefitial for couples who require both of their salaries to help meet the mortgage because a payout is made if either partner were to die.
Family Income Benefit offers the plan holder’s beneficiaries a monthly, quarterly or annual income from from the date the policyholder dies until the policy terminates rather than paying out one large lump sum.
The value of insurance you need will relate to your own individual position. Most large and medium-sized organisations offer a death in service benefit which can usually payout up to 4 times to your partner if you die whilst being employed. Hence if you are reasonably confident about staying with that employer, you may decide that paying for extra life insuranc with another arrangement is wasteful.
The cost of life insurance depends on a selection of factors, such as the type of policy, the length of its term, and certain health criteria, and certain medical questions - whether you are fat or whether you smoke. Underwriter are also increasing premiums for those who are obese.
There are big advantages to moving to pension term insurance. If you already have a term policy which pays out a lump sum, you can make savings on your monthly premiums by shifting to a pension term policy. This is is because under new pension arrangements, most policyholders qualify for tax relief on the money they pay for their life insurance plan if they opt for a pension term assurance (PTA) policy. This sort of insurance is basically the same as standard term insurance in so far as it is still protection-only. So it pays out if you were to die within the period the insurance was in force but if you survive to the end of the policy, nothing is paid out.
Not everyone stands to gain from moving to PTA, however. For instance, if you bought your life cover a long time ago, the more expensive premiums that you may now have to pay because you will then be oldercould well outweigh the benefit of tax relief. Similarly, if your medical record has deteriorated since you purchased your life insurance, you will probably be better off keeping your term insurance.
