When you take out life assurance, you are simply arranging for a sum of money to be paid out on your death, but is it really that simple? Let McCrea Financial Services guide you through the maze of Life Assurance products and help you find what you really need.
The main reasons for having life assurance can be one or all of the following:
Repayment of a mortgage or other debt
• Provide valuable protection for your family
• Business Protection – To pay off business debts, protect the business, insure key people
• To cover any Potential Inheritance Tax liability
What type of cover do I need?
Life assurance can be divided into two basic types - policies that offer protection only and those which have an investment link. Protection only policies (usually described as term assurance), pay out if you die within a specified period and have no encashment value. Investment linked life assurance includes 'endowment policies' and 'whole of life policies'. Although these two types of Investment linked Life Assurance contracts can have very different aims.
Consider the fact that we all have different priorities with regards what we are looking to protect, and the reason for protecting it. This means there are many different ways to protect your life. The simplest forms are either Level Term Assurance, or Decreasing Term Assurance. As the names suggest, the amount of cover remains level for the first one, and decreases for the latter. This may be more appropriate if you have a repayment mortgage, or a high level of dependency (young children for instance) where the sums needed for protection may reduce over time.
As opposed to paying out a lump sum on your death, you may choose to receive any payout in the form of a regular monthly income. This can be achieved by a Family Income Benefit plan.
You may wish to increase the cover over time, without having to provide additional medical information, Increasing Term Assurance can do this. Instead of having the cover for a set period of time, Whole of Life plans cover you until death, regardless of when this occurs. This is normally used for Inheritance Tax planning. Renewable cover can be used, which means you are covered for a set period, with the option to renew this at the end date, with no further medical underwriting, although the cost is likely to rise. Finally, you may wish to start with Term assurance, but then look to have Whole of Life cover, this can be done with Convertible Term.
How much cover do I need?
This can be difficult for people to address, however we all have to face the reality that we are mortal. Would only enough cover to protect the mortgage be sufficient - probably not as this just removes one monthly payment, all other fixed outgoings, Council Tax, utilities, food etc. still have to be paid. Does £100,000 seem enough – if your net home is £1,000 net per month, this would last 8 years 4 months. If you have children younger than 10, this money would run out before school leaving age. An old rule of thumb is that 20 times salary should be applied for; based on a 5% return this would provide an income the same as salary.
much will it cost?
This will relate directly to the type, and level of cover, as well as your health and smoker status. Sex is no longer a factor since an EU directive outlawed gender specific insurance pricing. Most plans can be done on a guaranteed basis, meaning the cost to you won’t rise. Certain providers offer reviewable premiums, which may offer a saving initially, but can rise over time. The premium itself can be insured with Waiver of Premium. This is when the insurer makes the premium payments on your behalf if you are not working due to ill health.
As you can see, there are many different options when looking at Life Assurance, which is why we always recommend specialist advice is sought.
Here at McCrea Financial Services, we specialize in dealing with clients who are looking to protect themselves, their homes, their children as well as their businesses. Each area has their own importance to you, but all areas of financial protection are important to the experts at McCrea’s.