Convertible Term - Contains an option at the end of the term to either convert it into an endowment or whole of life policy without the need for a medical assessment, this option must be exercised before the plan ends.
Decreasing Term - The level of benefit decreases as the term of the policy runs, however the premiums do not reduce. Premiums are fixed throughout the policy term, and the premium level is lower than that of Level Term Assurance as a result of the decreasing benefit. This type of life assurance is commonly used to protect Capital and Repayment mortgage debt. If you die within the term of the policy, it will pay out a lump sum to help clear whatever is outstanding on your debt but there is no guarantee that the lump sum paid will clear the debt in full.
Endowment Policies - Long-term investment plans, typically lasting between 10-25 years, with life insurance attached. Often linked with mortgages and will pay out any returns at the end of the policy term or a lump sum when the policyholder dies. They can be used as a tax efficient savings plan to build a sum of money for any purpose, or they can be used to repay an interest-only mortgage, which is often a requirement of the mortgage provider. Endowments can be unit linked which means that you can buy units in a fund or invest in a with-profits fund. An endowment policy is designed to return a specified sum of money at the end of the term; however, if the life assured dies during the term, a specified lump sum benefit would be paid.
Family Income Benefit - In the event of death the amount of protected income chosen at outset will be paid for the remainder of the term – often until your youngest child is 18 or 21. Family Income Benefit is one of the least expensive forms of life insurance and differs from most other types in that it is designed to pay the benefit as an income rather than a lump sum. This type of policy can also include Critical Illness Insurance. Family Income Benefit is a low cost, tax efficient solution to Family Protection.
Income Protection - Should you suffer ill health these plans provide a replacement income until you are either fit to return to work or retirement age, whichever comes first. At outset you select among other options the amount of income required, a waiting period during which no income is paid in the event of a claim (normally 4-52 weeks) and the term which normally coincides with your retirement date. In the event of ill health the plan allows you to maintain your lifestyle without being forced to sell assets. With the low level of state benefits, these plans should be seriously considered as they can be tailored to your needs and budget.
Increasing Term Assurance - This type of cover protects you for a given term for an increased level of benefit. The amount of life cover chosen at outset rises annually, usually by RPI. However, the premium price will also increase, but by selecting this option you are protecting the purchasing power of your selected benefit. This type of policy is worth considering if you are insuring over a long term.
Investment Linked Assurance - With term assurance policies, lower premiums make them an affordable way of helping to protect your family in the event of death within the policy term, but there is no guarantee of a pay out. However, some life insurance policies can be effectively used as an investment. Investment linked insurance allows the flexibility to choose your own level of protection and investment, as well as giving the ability to vary the amount of premium payments, based on your own personal financial situation.
Level Term Assurance - This type of cover provides a lump sum on either death or diagnosis of terminal illness, with the level of cover remaining the same throughout the full policy term. The policy will pay out if you die during the term of the policy, and may also pay out if, before the last say 12-18 months of the term, you are diagnosed with a terminal illness. If the policy pays out because of terminal illness claim, the policy and cover will end and therefore there will be no further payment on death. This type of protection may be suitable for family protection and interest only mortgage debt, where the level of debt does not decrease as the years progress.
Renewable Term - This type of policy gives you the option to extend the policy at the end of the term. The premium paid is based on your health at the time you took out the original policy, even if your health has deteriorated substantially since then. This type of protection is useful for dealing with unexpected events, such as a child staying in full time education for longer than originally anticipated. This could also be a good option if you cannot currently afford the level of cover you need for the period you require – cover can be taken out for a shorter period, and at the end of the period you could take up your option for a further period. This would make premiums higher because you would be older, but there would be no additional charge on health changes.
Trusts - When you are putting protection in place it is important to also consider if the new plan should be written under trust. A trust is often said to 'put money in the right hands at the right time', and you should remember that without a trust the payment may fall into your estate and not be accessible until the estate is settled (possibly 12 months!). A trust can also provide for minor children and ensure that the sum assured does not fall into your estate for inheritance tax.
Whole of Life - These plans pay out the sum assured on your death whenever it may occur and are therefore more expensive than plans which only provide cover for a limited term, therefore they may not pay out at all. Modern plans may simply provide a fixed sum assured in exchange for your premium but others may provide cover based on expected investment returns and may therefore need premiums increased if the returns are less than expected.