Which Life Type Of Insurance Policy Is Best?
Summary
There are various categories of life insurance cover policy available in the market. Many people are now reaping the benefits of more economical monthly premiums by switching to pension term assurance (PTA) because of the tax relief available on the cost of this type of insurance policy. It is not, however, suitable for everyone.
Recently it was revealed that the cost of life insurance has reduced greatly in recent years. What sort of policy is most suitable for people like you?
Term policies are the simplest and cheapest typeof life insurance cover – you pay a premium every month for a set amount of cheap life insurance for set number of years that the policy will run for. If you were to pass away whilst the policy was in place, it then pays out a cash sum. If the plan terminates and you are still surviving, no benefit is paid out.
There are several types of term insurance: “level” term is where the payout is a set amount; “decreasing” term, which is always much cheaper because the cash to be paid out falls every year. In most cases this type of policy is taken out to insure a mortgage.
“Increasing” term insurance is an option where the insured sum goes up each year; this can be an interesting way of protecting your coveragainst inflation.
Joint life cover is very benefitial for couples who require both of their incomes to help meet the mortgage because a payout is made if either policyholder were to die.
Family Income Benefit (FIB) offers the beneficiaries a monthly income from from the date the policyholder dies until the end of the policy term rather than paying out one cash lump sum.
The value of cover you need will relate to your own individual personal circumstances. Most medium and large sized businesses offer a death in service benefit which can pay out 3 or 4 times to your partner if you were to die whilst still employed. Therefore if you are reasonably confident about staying with that employer, you may conclude that paying for extra life insuranc with a separate policy was not required.
The price of a life insurance policy depends on a few factors, for example, the sort of plan, the number of years it should be in force, and certain medical criteria – whether you are fat or whether you smoke. Insurance underwriters are also especially clamping down on obesity.
There are serious advantages to switching to pension term insurance. If you already have a term insurance cover which pays out a tax free cash sum, you can make big savings on your premiums by switching to a pension term plan. This is is because under new pension laws, most policyholders qualify for tax relief on the money they pay for their life insurance plan if they opt for a pension term assurance (PTA) policy. Pension term assurance is basically the same as term insurance cover in so far as it is still protection-only. So it pays out if you die within the term but if you survive, the policy has no value.
Not everyone stands to gain from moving to PTA, however. For example, if you purchased your life assurance a long time ago, the more expensive premiums that you may now have to pay owing to the increase in your agecould well outweigh the benefit of tax relief. Similarly, if you have been ill since you took out your life cover, you will probably be better off remaining with your current insurance plan.
