Term
assurance or life protection is an insurance
policy that may pay out a lump sum on the death
of the policy holder. This can be linked to
a mortgage or to family. This is not linked
to an investment and if not claimed on will
not pay out. It can be level term or decreasing
term. Level term is a fixed agreed amount that
will pay out on claim, that amount will not
change unless it is index linked and will rise
in line with the index rate in place to over
come the effect of inflation on the lump sum.
Where
as decreasing term, a cheaper option will diminish
down on pay out in time, linked normally to
a repayment mortgage. Though this might help
the effect of inheritance
tax. It should be noted that life insurance
can be placed in trust that means the policy
will be ring fenced from the government taxing
your assets over a certain level on death.
Family
members may be taxed on their total assets at
40% over a set amount but a policy in trust
is protected from this tax. The trust should
be taken out with the policy at start up, it
may not be allowed to be added after a certain
amount of time of the policy running. This may
change due to new UK Government policies.
The
amount of cover potentially may cover all the
debts including mortgages, loans, credit cards
and other debts. Then perhaps it would be wise
to add on top an amount that would allow your
loved ones to live comfortably after your death.
It should be noted that if you are the main
earner on death your partner may struggle if
only the debts are paid off especially if there
are children as well to consider.
Monthly premiums may depend if you are a smoker,
your age, health, weight, family history and
type of employment. Policies will not pay out
if you do not disclose all the facts accurately
and keep those facts up to date. A classic example
of this would be if the insured did not disclose
they were a smoker, this could make the policy
nul and void.
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