Life insurance isn't the easiest thing to talk about, but from just a few pounds a month you can help make sure that your family is financially looked after if the worst happened.

LIFE INSURANCE

There are two types of life insurance investment-type and term insurance.

INVESTMENT TYPE LIFE INSURANCE

Investment-type life insurance pays out if you die and if you don't (with the exception of whole life insurance) – and may sound ideal. But investment-type policies cost a lot more than protection-only insurance. Usually, it's best to keep your insurance and investment needs separate.

If you want investments, consider the full range of products (not just life insurance), which might meet your circumstances and needs.

These are all investment-type insurance;

• Whole-of-life insurance
• With-profits bonds
• Unit-linked bonds
• Income and growth bonds
• Endowment policies
• Maximum investment plans
• Other life insurance which builds up a cash-in value

(To find out more about specific investment type product, please see the investments section of the FSA Consumer website)

WHAT TO CHECK OUT

Does It Meet Your Needs?

• Do you want income, growth or both from your investment (i.e. the focus is investment, not insurance)?
• For how long are you prepared to invest? Will you need to get at your money early?
• Part of your premiums pay for life cover – do you need this? If not, other investments might give you a better return.
• If you do, check whether separately buying term insurance plus other investments would be a better deal

Cost

• How much must you pay in total over the life of the policy?
• How are the charges taken?
• Research shows that charges are one of the most important factors to check out
• The Key Features document (soon to be replaced with Key Facts) tells you about charges

Your Commitment

• How much must you pay, when and how often?
• If the policy requires regular payments, can you stop and start them without stopping the policy?
• Can you vary the amount you pay?

Flexibility

• Can you vary the amount you pay even stop premiums for a while?
• Can you transfer your policy to another provider?
• What charges are deducted if you stop the plan early or transfer it to another provider?

Return

• Does the provider pay tax on the investment underlying the policy? (If so, bear in mind you can’t reclaim this tax)
• Check if you will have to pay tax on amounts the policy pays out
• Given your personal tax position, is this a suitable policy?

WARNING Do not rely on past investment performance

Risk

• Can you choose how your money is invested
• Some investment funds are riskier than others.
• Is there a fund matching the level of risk you are happy to take?
• Can you alter the way your money is invested during the lifetime of the policy?
• Is there a charge for doing this? If you choose a with-profits policy, are you happy with the financial strength of the company?
• If you are drawing an income from the policy, how likely are you to get your capital back in full?

Review

If you are using the policy to meet a specific savings target – for example, to pay off your mortgage or pay school fees – check regularly that your savings are on track and, if necessary, you may need to think about increasing the amount you save.

Other

WARNING: Check what charges are deducted if you stop the plan early or transfer it to another provider.

Make sure you understand how a with-profits policy works before you invest.

Additional information to be aware of specific to with-profits bonds.

TERM INSURANCE

If your main concern is protecting your family or other dependants, term insurance is often the cheapest way to buy all the cover you need.

Term insurance pays out if you die within a set period of time (the “term”). If you survive the term, it pays out nothing. You might set the term at, say, the number of years until your children are financially independent, or the number of years remaining on your mortgage. It is not an investment, however, it is a low cost form of life insurance.

Types of term insurance;

Lump Sum Term Insurance (Including Mortgage Protection Policies)

• These are term insurance (also called protection-only life insurance)  for a fixed term and only payable if the payout event (i.e. death) occurs within that time. More details here

Family Income Protection

• Family Income Benefit (FIB) pays a monthly income to the beneficiaries in the event of death of the person/s who are insured

WHAT TO CHECK OUT

• Does It Meet Your Needs?
• Can you get the amount of cover you need?  There may be a maximum or minimum.
• What type of policy do you want? For example, family income benefit (a policy which pays out income rather than a lump sum), increasing policy (where cover and premium rise over the years), renewable policies (which let you extend the original term).
• Check for exclusions – in other words, when the policy won’t pay out. For example, most do not cover death due to alcohol or drug abuse. You might not be covered while taking part in risky sports. If your health is poor when the policy starts, some causes of death might be excluded or you might be refused cover altogether.

Cost

• Typically, tables show the monthly premium for, say, £100,000 of cover for a woman of a given age for various terms (from, say, 10 to 30 years). Find the best premiums for the example which most closely matches you.
• Smokers usually pay more than non-smokers. The premium may be higher if your health is poor, or you take part in risky activities
• The premium may be higher or cover refused altogether if your lifestyle puts you at added risk of contracting HIV/AIDS.
• Premium shown are usually fixed for the whole term
• You get tax relief on premiums if you take out life cover through a personal pension or a stakeholder pension. However the life insurance element will be taken as part of the maximum you can pay into your personal pension.

Your Commitment

• How much must you pay?
• Do you pay monthly or annually?

Flexibility

• Does cover stop immediately if you miss a payment or is there a period of grace?
• Can you reduce or increase cover easily as your circumstances change?
• Are there extra charges for doing this?

Return

• Not Applicable

Risk

• By paying extra, you can usually include ‘waiver of premium’. It pays the premiums if you can’t work because of a long-term illness.

 

IMPORTANT NOTES

Fee Disclosure

It should also be noted that it is usual for the insurance companies, who underwrite the policies recommend to you, to pay a fee to the Adviser. This is in recognition of the expertise, time, marketing expenses and administration in initialising the policy for you. 

Company Insurance

Some Lenders mortgage offers may contain a condition that you take out insurance such as Buildings, Contents, Accident, Sickness and Redundancy. They may also insist that you take the insurance out with them. Please refer to your Mortgage offer to check this and if it is a condition, it is acceptable to you. 

Confidentiality

We will treat al your personal information as private and confidential (even when you are no longer a customer), except where disclosure is made at your request or with your consent in relation to arranging your mortgage.You have a right of access under the Data Protection Act 1998 to your personal records held on our computers and files.

Complaints

We have internal procedures for handling complaints fairly and speedily and we will tell you what these are. These will include establishing a set time for an initial acknowledgement to your complaint, we will tell you how long it might take us to respond more fully.If you wish to make a complaint, we will tell you how to do so and what to do if you are not happy about the outcome. We will help you with any queries.

FSA Useful Guides

The Financial Services Authority publishes useful guides on choosing a mortgage. These are available free through its website; or by calling 0845 606 1234. The website also provides Comparative Tables to help you shop around.

Life Protection quick guide

• Give yourself and your family extra peace of mind.
• Can use the proceeds of the cover to pay off your mortgage
• Choose how much cover you want - paid as a lump sum
• Change the amount of cover as your circumstances change.
• Guaranteed premiums that can't increase (unless you choose inflation-linked cover).

Choose the right sort of cover for you:

• Level, inflation-linked, decreasing - single or joint life.
• You can choose to include waiver of premium.
• Have a look at our example table to find out how much cover you could get.
• Important things you should know
• If you stop paying the premiums for your policy you may not be covered.
• If you cancel your life insurance, you won't get back any premiums you've paid.
• If you die, we'll normally pay the lump sum to your estate. Inheritance tax could apply to the part that's worth over £325,000 (tax years 2009/10 and 2010/2011).
• We can create a trust so that the lump sum won’t go into your estate, there by reducing any possible Inheritance tax issues.
• If you choose level cover, the amount of your cover is fixed when your policy starts. This means it won't keep up with inflation, and will buy less in the future.

To apply for Life Protection, all we ask is that:

• you're a UK resident
• you're between 17 and 79 (or 17 and 59 for inflation-linked life insurance cover)
• your premium is at least £5 a month

Life Protection premiums

Your premium is guaranteed as soon as you start paying. We will not increase it unless you choose inflation-linked cover.Next steps

Contact one of our advisors for a free no obligation quote.

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