Most of us will need life assurance at varying times in our lives. However, there are different types and it very much depends on your circumstances and requirements that will determine which is the most appropriate. For example, if you are taking on a mortgage or practice loan, decreasing term (mortgage protection) assurance would normally be appropriate. Alternatively, if protecting your family or insuring a business partner, level term assurance may be favoured.
Level Term provides a guaranteed sum assured over a specified period in return for a premium fixed at outset.
A variant on ordinary level term, convertible term includes the invaluable option to convert the policy to either endowment or whole life assurance at ordinary rates of premium, irrespective of any deterioration in health. It effectively ensures insurability for life which could prove of particular benefit for someone who finds themselves subsequently uninsurable. This is an excellent contract for professionals whose aspirations are high and the likely need for further cover later in life is almost certain.
Both mortgage protection and family income benefit are forms of decreasing term. Unlike level term, the sum assured reduces over the term of the contract so is ideally suited where the risk or liability diminishes over time. Consequently, it is the cheapest form of life assurance.
This contract would normally be used to cover a mortgage or practice loan as the sum assured is designed to reduce in line with the repayment of the capital borrowed over the term of the loan. It is important to ensure that the interest rate on which the initial sum insured and the premium is based is at a realistic level because if the interest rate and, consequently, the premium is too low, the loan may not be cleared in the event of a claim.
Family Income Benefit
This pays a tax free monthly or quarterly income to the beneficiary for the remaining term of the contract. For example, in the event of a claim in year ten of a twenty year contract, the income would be paid for the remaining nine or so years.
Whole of Life
Unlike term assurance, whole of life provides cover for the whole of one’s life, however long or short that may be. Premiums are either guaranteed or
reviewable (increasable) at regular review dates. This type of cover is often used for inheritance tax purposes and, in such circumstances, would normally be effected on a joint life, second death basis and written in trust.