Independent Financial Advisers     

Life Protection

Make sure your loved ones are covered should the worst happen.

Whether it be making sure there is adequate provision in place to repay your mortgage or making sure your family are looked after, planning for the event of death or serious illness is extremely important.  There are many different types of protection products that can be taken out, here are a few examples;

Term Assurance

This is one of the most popular and cost effective ways of arranging cover, the way it works is to provide a lump sum of money upon the death of the individual for a certain period of time or term.  It is suitable to use in conjunction with covering a debt such as a mortgage as in most cases there will be a predermined length of time that the mortgage will run i.e 25 years. 

There are many options that can be stipulated at the time cover is taken out, the amount of cover can remain constant during the term of the contract, this is more commonly referred to as level term assurance and works well if someone has an interest only mortgage.  There is an option for cover to reduce over the term, referred to as decreasing term assurance or mortgage protection, this is designed to work in tandam with a capital and interest repayment mortgage.  One can also specific options such as indexation which will allow cover to increase in line with inflation, cover can also be placed to cover either a single, joint or multipal lives.  

The major advantage of term assurance is that it is realtively inexpensive to arrange however the major disadvantage is that if the person lives beyond the term of cover they will get nothing back and cover will simply expire.

Whole of Life

Term assurance is fine if as we have seen a debt or liability needs to be covered however if someone wants to be able to provide a lump sum upon death at anytime rather than within a fixed period of time they will need a different type of cover.  A whole of life plan as the name suggests is designed to work for the full duration of a persons life.  When the individual takes out cover, based on factors such as age and state of health will determine how much the cover required will cost, as long as premiums are paid for the full duration of the contract until death a lump sum will be paid out. 

There are two main options that can be specified at the time the contract is taken out, the first is whether the policy is taken out on either a reviewable premium basis or a guaranteed one.  A reviewable contract allows the provider (normally after 10 years of the policy being taken out) to relook at an individuals health and age and increase the premium in line with the increased risks a claim will be made.  It is then common for the policy to be reviewed every five years after this with again the risk the premiums will increase, although premiums can start off very low with time it can make these policies very expensive.  The other alternative to this is guaranteed premiums, once the policy has started as long as the premiums are paid the policy premiums will never increase. 

The second major option with these policies is whether or not to include an investment element to the policy.  The way this would work is that part of the monthly premium paid is used to invest and over time it will hopefully build up a savings element to the plan.  However this type of policy should never be used soley as a savings plan and the amount that the individual might get back if the policy were to be surrendered would be minimal compared with the premiums that would have been paid in.

To summarise the major advantage of this type of cover is that there is no expiry date as long as cover is kept in place which makes it more flexible, however the major disadvantage especially if the policy is setup on a reviewable premium basis is that cover can end up becoming very expensive.

Critical Illness

An option that can be specified on either of the above types of cover either on its own or in conjuction with death cover is Critical Illness.  Instead of paying out on the death of an individual the cover is designed to pay out a lump sum if the individual is diagnosed with a major illness.  There is a list of illnesses that all insurance companies will cover such as heart attacks, various types of cancer and strokes however some will cover more unusual and rarer conditions.

The major advantage to this type of policy is that with modern medicines and treatments and individual may well survive the illness but as the benefits are paid out upon diagnosis they can benefit from the payout.  The major disadvantage is that the cost of this cover can be very expensive.

As you can see there many things to consider when deciding what is the best way of protecting yourself and your loved ones.  Getting the right advice is very important.  If you would like more information do not hesitate to click here to contact us.