AFP Mortgages & Business provides Life Assurance & General Insurance advice, with access to a wide range of the major insurance companies. What is life insurance? Life assurance will pay out a lump sum or an income if you die.
Life assurance can provide a lump sum which your surviving dependent(s) can then use to pay for something specific e.g. an outstanding mortgage or an Inheritance Tax bill. Life cover may be needed to provide your family with an income to live on or to invest/use for income purposes.
Life policies can cover a single life or joint lives. A joint-life policy can be designed to either pay out on the first death (appropriate to pay off a mortgage or to protect dependants) or on the second death as part of inheritance tax planning.
Two single life policies, however, are often not much more expensive and may be appropriate if different levels of cover are required e.g. when one partner earns a lot more than the other and accordingly may need a higher level of cover.
Life assurance policies may also be written 'in trust' - the benefits can be paid directly to your nominated individual(s) without it becoming part of your estate. Under such an arrangement, your survivor(s) will receive the pay-out quicker and it will not be subject to Inheritance Tax. Life assurance may be taken out for a specific period (‘term assurance’) or until death (‘whole of life assurance’).
The simplest and cheapest type of life assurance, term assurance is taken out for a set period e.g. 25 years etc. and death within that term will lead to the policy paying out a tax-free lump sum. The premiums are usually fixed for the term of the policy (some policies offer ‘reviewable’ premiums that are lower to start with and then increase after say ten years).
There are various types of term assurance
This is where the amount of cover remains the same for the term of the policy.
The amount of life cover reduces during the period of the policy and is often the solution to protect a mortgage or loan commitment.
This is where the amount of cover and the premiums increase over the term.
Family income benefit
This pays out a regular tax-free income to a survivor on death.
This allows you to extend the original term of the policy.
Such policies carry on until death or for as long as the premiums are paid. Some policies have an investment element and accordingly may only have a small amount of life cover in the early years, as the premiums also pay for the investment element.
Whole-of-Life policies can be expensive but are useful if you want a guarantee that your policy will pay out upon death at any stage of your life. Such policies are often used as part of Inheritance Tax planning or just to provide funds for survivors, after death. A joint whole-of-life policy will pay out when the second person dies (policies written in trust will mean that the proceeds won't be included in your estate for Inheritance Tax purposes).
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