Theres Another Sort Of Life Insurance To Consider
Summary
There are various categories of cheap life insurance plan available in the market. Many customers are now reaping the benefits of lower premiums by changing to pension term assurance (PTA) because of the tax benefits 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. How do you know what kind of policy is best for you?
Term policies are the cheapest sortof life insurance plan - you pay a premium every month for an agreed amount of life insurance for an agreed number of years that the policy will run for. If you die whilst the policy is in force, it then pays out a cash sum. If the insurance plan comes to the end of its term and you are still alive, nothing is paid out.
There are several sorts of term insurance: “level” term where the payout is a set sum; “decreasing” term, which is usually significantly cheaper because the sum to be paid out decreases every year. In most cases this type of insurance is taken out to insure a mortgage.
Another option is “increasing” term insurance where the insurance cover goes up each year; this can be a good way of protecting your financesagainst inflation.
Joint life insurance policies are useful for couples who require both of their salaries to help meet the mortgage because a payout is made if either policyholder dies.
Family Income Benefit (FIB) offers the plan holder’s beneficiaries a regular income from from the date the policyholder dies until the end of the policy term rather than paying out one single capital paymemt.
How much cover you need will be dependent upon your own individual personal circumstances. Most large and medium-sized businesses offer a death in service benefit which can usually payout up to 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 additional life insurance with a separate policy was superfluous.
The cost of life cover depends on a few factors, for example, the sort of plan, the number of years it should be in force, and certain medical issues - whether you are obese or whether you smoke. Insurers are also coming down hard on those who are over-weight.
There are significant advantages to switching to pension term assurance. If you already have a term policy which pays out a l;arge tax free lump sum, you can save a considerable amount on your monthly premiums by shifting to a pension term policy. This is is because under new pension laws, most customers qualify for tax relief on the money they pay for their life insurance if they opt for a pension term assurance (PTA) policy. This sort of insurance 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 live to the end of the insured period, no payout is given.
However, not everyone stands to benefit from switching to PTA. For instance, if you purchased your life cover a long time ago, the higher premiums that you may now have to pay because of your increased agecould well outweigh the benefit of tax relief. Similarly, if you have been seriously ill since you purchased your cover, you will probably be better off remaining with your current insurance plan.
