A Life Insurance policy is designed to payout to you (the policyholder), or your nominated beneficiaries, in the event you unable to work due to unexpected illness or unemployment or when you pass away. The duration of the protection (the Term) is determined by you and can be anything from 1 year to an entire lifetime. However, a Life Insurance policy must be valid at the time of a claim for it to payout as directed.
There are many Life Cover options available, each with their own specific conditions, therefore we strongly recommend that you always speak to a specialist insurance advisor before you take out any Life protection cover. This will ensure your Cover and Monthly Premiums meet your individual needs.
There are many benefits with a Life Insurance policy, including the ability to set them up ‘in Trust’. A Trust is a legal document stating who benefits - an advantage of a Trust is that it cannot be easily contested, unlike a Will. Setting up Life Cover ‘in Trust’ ensures that the right person gets the right amount of money at the right time efficiently & promptly. In many cases can help to minimise inheritance tax. A trust can’t be setup online , but our insurance advisors can put your Life Policy in Trust at your request.
When choosing your Life Insurance policy it is worth considering there are two main types of protection:
1. Cover During Life.
These are several policies designed to provide various financial cover against unexpected circumstances in life. Some of the options available are;
- ‘Income Protection’ protects your income from a range of eventualities, including Accident Sickness* unexpected Unemployment*. It payout a percentage of your salary monthly, which will cover your mortgage repayments and other costs.
- ‘Critical Illness Assurance’ is often an add on to a Life policy and will payout a lump sum if the policy holder is medically diagnosed with life threatening illness as listed on the policy.
2. Cover After Death.
These policies are designed to payout after you pass away*. The main options that most providers offer are;
- ‘Life Insurance’ is also known as ‘Term Insurance’. It pays a lump sum upon death* to nominated beneficiaries.
- ‘Level Term Insurance’ is similar to ‘Term Insurance’ but pays out a set (level) amount to nominated beneficiaries if you die within a fixed time period, specified at the outset. The choice of the cover period (term) is up to you.
- ‘Whole of Life Assurance’ This is an open-ended investment based policy that pays out when you die. It is also one of the most expensive insurance options, as people are generally living longer.
- ‘Mortgage Life Protection’ This is policy to protect your property. It will pay for your whole mortgage in the event that you die. It is sometimes called 'Decreasing Term Assurance' as the amount it pays out decreases as your mortgage decreases.
There are many advantages of putting your Life Insurance policy in trust.
What is a Trust? A trust is a legally recognised document that states the names of your beneficiaries, who you wish to benefit from your estate when you pass away.
By taking out a Life Insurance policy you are helping to protect your family’s financial needs, in the event that anything unforeseen happens to you (the policyholder). You should also consider what your beneficiaries would receive from your life plan.
Placing your life policy in the right type of Trust ensures that your policy won’t be counted as part of your estate on death - which means your named trustees would not have to pay inheritance tax on the money received from the policy.
To ensure this happens correctly and to help avoid paying unnecessary inheritance tax, you would need to have put your policy (Life Plan) into TRUST.
Why put your policy into TRUST?
Having your policy in trust ensures your nominated Beneficiaries receive payouts efficiently and effectively. Note, funds are generally released on production of death certificate. One important factor of a trust is that you can be assured;
The ‘Right person’, gets the ‘Right amount’, at the ‘Right time’.
How to set up a TRUST?
To be certain that your life plan is put into Trust properly, we recommend that you seek advice from qualified insurance adviser. They can help you set up the trust effectively.
The originator of the trust (you) is called ‘the settlor’. As the ‘settlor’ you are the only person who can name each of beneficiaries and what percentage of the money they would get from your life plan. A settlor cannot directly benefit from the trust itself. Whilst you are alive you are a trustee of the trust.
Please note; Information on trust is for guidance only and should not be considered as specific financial advice. For more information or advice you can discuss your needs with one of our appointed FSA approved insurance advisors.
Before making a commitment on any Life Insurance policy you must ensure you have disclosed everything.
Always be honest about your situation. All past and present medical conditions. Any potential health risks. If you do not then the insurance company can use 'non-disclosure' as an genuine reason not to pay out.
The cost of Life Insurance is influenced heavily by the likelihood of the insurance provider having to pay out – so if you are a smoker with a dangerous job, you will pay more than a non-smoking office worker. Before you make any decisions choosing a Life Insurance policy always review what is covered by the policy, not just the price. Some types of cover might be cheaper than others, but they may not offer the same level of protection you require.
In February 2011 the EU Court ruled that from December 2012 gender can't be factored into insurance costs, which means the prices for life cover could rise sharply. Currently men pay more than women as the risk of dying within their set term's higher. The expectation is that the coming ‘price equality’ will mean that women's costs will soon rise.
Check for exclusions – Know when the policy would not pay out. For example, most policies do not cover death from alcohol or drug abuse. You might not cover you if you take part in high risk sports. If your health is already poor, before the policy starts, certain causes of death might therefore be excluded or you might even be refused cover altogether.
Consider setting up a policy under trust. This would mean that in the event of death, proceeds of the policy are paid directly your nominated beneficiaries without incurring tax inheritance. It is important that a policy under trust is set up correctly, therefore we recommend you seek advice from a financial or legal professional.
Does your policy include a waiver of premium? If yes, the waiver covers the monthly premiums if you are unable to work because of long-term illness, ensuring your cover is not interrupted. You can often add this to a policy by paying extra.
How flexible is the contract? Can you reduce or increase cover easily as your circumstances change? Are there extra charges for doing this? Does cover stop immediately if you miss a payment or is there a period of grace?
Do you wish to change insurer? If so, check the premium cost of the new contract, before switching. In general premiums get higher the older you become or if you have developed any medical conditions. Also, check the new level of cover compared to the previous one. You may not be covered for any new medical conditions developed before taking the previous contract. If you do decide to change, insurer make sure you do not cancel any original cover until you are fully covered by a new contract.
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Content on this website is intended to provide information only and it should not be considered financial advice. Every individual has different policy requirements therefore we recommend that you consult with an insurance specialist before making a commitment on any life insurance policy.
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