What
is an endowment policy?
An endowment policy is designed to pay out a cash sum on a specified
date. If however, the insured person dies before that specified date,
the cash sum would be paid out at that time. Usually, equal
premium amounts are paid throughout the specified period with the final
cash amount (maturity value) depending on the performance of the fund
that it participates in. An endowment is actually a form of
savings, so a policy holder may stop the payments before the maturity
date and withdraw a reduced cash sum (a surrender value). The
endowment policy can also remain in force after payments have ceased,
paying a reduced sum on the maturity date or death. If a surrender
value is required, it may be possible to sell the policy to a specialist
company in order to obtain a higher payout than the provider's surrender
value.
Income
Protection
Accident Sickness and Unemployment
is becoming increasingly popular, in today's uncertain economic climate,
where a job is no longer for life. This sort of insurance
covers the insured during a limited period (usually 12 months)
when they are unable to work, through accident, sickness or
unemployment.
Income
Protection Insurance
Typically this type of insurance cover provides a replacement for part
of the insured's regular income, should they become unable to work,
either because of disability or long term illness.
The self-employed
in particular, should consider this sort of insurance
Income
Protection Insurance will pay you a liveable wage in the event of you
being unable to work due to accident or sickness. Premiums are usually
calculated on your occupation and required benefit.
When
calculating your desired benefit, you need to consider your liabilities
and outgoings, not forgetting mortgage, credit cards and loans.
You also need to decide how long you could wait before the policy
benefit is paid out and, if you were permanently incapacitated, the age
the benefit would stop. Short term income
protection is also available that pays out much quicker but the
period of cover is limited.
Term
Insurance
Term insurance pays a tax free lump sum in the event of death within a
specified period of your choice (referred to as the 'term').
Fixed annual or monthly premiums are paid for the duration of the
term.
As there is no investment element with this form of life insurance, if
no claim is made, there will be no maturity value payable at the
end of the term.
Term insurance is the simplest and cheapest form of life insurance. A
few pounds per month can provide cover for a payout of tens of
thousands of pounds. You are covered for as long as you pay the
monthly premiums. The policy terminates if you stop paying the
premiums.
Term insurance is
available is a couple of different flavours:-
Decreasing
With Mortgage
Protection Insurance also known as Decreasing Term Assurance you pay a
fixed monthly premium but, instead of the life cover remaining level,
it gradually reduces over the term of the policy. It is most commonly
used together with a repayment mortgage and the sum assured reduces
broadly in line with the amount outstanding on the mortgage over the
term. The reducing life cover means that the cost of this type of
policy is lower than that of Level Term Assurance.
Level
Level Term Assurance is the most basic type of life assurance.
For fixed monthly payments, the amount of life cover - also known as
the sum assured - is guaranteed for a fixed term. The lump sum is paid
out if death occurs before the policy ends.
Convertible
Term Assurance. Convertible term assurance plans are those
term assurances that have an option to convert to another type of life
assurance offered by the same provider, such as endowment, without
requiring further medical evidence.
Mortgage
Payment Protection
In 1999, 30,000 properties were re-possessed by mortgage lenders, even
in 2000, when it no longer makes headline news, 90 families a day had
their homes repossessed. Many lost their homes because they
could no longer afford to pay their mortgage payments through an
accident, sickness or unemployment.
The homeowners never thought it would happen to them, they had a good
job, redundancy was something that happened to other people.
They probably
thought the government would help them; but most people do not qualify
for help because they have a working spouse, or they have a few thousand
pounds in savings. You may not even be entitled to more then 6
months Job Seekers Allowance (dole) for the same reasons - don't forget
that is only around £53 per week.
Every day 500
people in the UK become unemployed. 60% of unemployed men and 45% of
unemployed women will be out of work for six months or more.
What is Critical Illness Cover?
If you are worried about what would happen to your mortgage, dependants,
loans or business interests on your becoming seriously ill, critical
illness cover may be the answer. Critical illness cover pays
out a cash sum if you are diagnosed as suffering from one of a range of
specified illnesses and survive for a specified period of time.
You can choose to
have Critical Illness Cover on a Level Term Assurance or Mortgage and
Business Cover single life or joint life first death basis.
Critical Illness Cover can be taken out in addition to Life Cover or you
could Critical Illness Only plan. The plan will end on pay out the sum
assured.
Usually critical
illness conditions include*: Alzheimer's Disease, Heart Attack, Major
Organ Transplant, Multiple Sclerosis, Blindness, Aorta Graft Surgery,
Heart Valve Replacement or Repair, Motor Neurone Disease, Benign Brain
Tumour, HIV/AIDS contracted in certain circumstances*, HIV/AIDS as a
result of a blood transfusion, Paralysis/Paraplegia, Cancer, Inability
to perform duties of occupation, Parkinson's Disease, Coma, Kidney
Failure, Stroke, Coronary Artery Surgery, Loss of Limbs, Third Degree
Burns, Deafness, Loss of Speech, Total Permanent Disability
Children's
Benefit
Some providers offer a "children's benefit" that pays
out a cash sum if your child is diagnosed as having contracted one of
the specified critical illnesses (please read the policy terms and
conditions for full details of any exclusions).
In order to
complete the insurance, there may be a requirement for a few medical
questions when completing the provider's application form. If the
insurer needs further information, it may consult with your doctor or
ask for a medical to be completed. If you have suffered from past
illness or are excessively overweight, premiums may be increased to
reflect the greater risk you represent to the insurance company. In some
cases an insurer may refuse cover altogether.
*Full definitions
used and cover provided will depend upon the cover provider - you should
read the policy terms, features and provisions thoroughly to satisfy
yourself that you are happy with the cover offered.
Family
Income Benefit Insurance
Rather than paying out a lump sum should you die during the selected
term, a Family Income Benefit policy pays out a regular tax free income
for your dependants for the remainder of the plan term. The amount of
income benefit usually remains level over the plan term selected,
although you can request that benefits increase in line with inflation
as an optional extra. As an example, if you select a £15000 per annum
family income benefit plan over 25 years, and die at the end of year 10,
then your dependants will receive £15,000.00 every year for the
remainder of the term i.e. 15 years (£225,000.00 in total).
How
much cover should I take out?
There is no limit on the amount of life assurance you can take out, use
your current earning as a guide. So, if you have a family,
generally you should calculate the amount of cover you need by taking
your annual salary and multiplying it by ten or twenty. However this
does not take account of individual personal circumstances and so could
leave you either over or under insured.
A more accurate method should include the liabilities you might leave,
including Inheritance Tax. However, Inheritance Tax is not payable if
your estate passes to your spouse, or on estates valued below £242,000
(2001-2002 tax
year). Many people would be surprised to find their estate
is above this level, so it pays to sit down and look at your assets
carefully.
The cover should also be able to repay any mortgage if necessary as well
as other outstanding loans. It could also be used to provide a future
income for the partner, or to pay ongoing expenses such as childcare.
Remember to offset existing cover can be set against this amount, for
example life cover in a company or personal pension plan. Bear in mind
that not all company pension schemes recognise unmarried partners as
entitled to death benefits.
Of course, the amount of cover will need to be reviewed from time to
time, to take into account any changes in personal circumstances.
This
site contains general material and is not intended
to give financial or other professional advice.
If expert advice is required, please seek the services of a
qualified professional.
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