Life Insurance Guide

Those struggling with unmanageable debts often go to great lengths in order to cut back their expenditure to try to maintain their debt repayments. This translates into cutting back on perceived non-essentials. A great number of people who contact Debt Divas have no life cover in place. Often they’re surprised to learn that such expenditure is generally allowed by creditors in arrangements such as IVA’s, Debt Management Plans, Trust Deeds and Bankruptcy. The reason for this is that the cover that can be provided is of such fundamental importance to dependents and partners/spouses. Debt Diva Vanessa Phillips has prepared the following guide to Life Insurance. If you’d like to find out how much such cover would cost you please complete the form at the bottom of the article.

Term Assurance

Term Assurance is the most basic form of life assurance. It only pays out if the life assured dies during the term of the policy. If the life assured survives to the end of the policy, no payment will be made and the policy expires. Life assurance policies are very popular in the UK, and this is because they offer peace of mind to those with loved ones and families.

You need to bear in mind that, as with any life insurance, these policies are subject to terms and conditions, and you should make sure that you familiarize yourself with these so that you know about the exclusions and any restrictions.

These policies are very easy to understand, and can be tailored to suit your needs in terms of the fixed term and the amount paid out, although your premiums will obviously be affected by the type and level of cover that you select.

Although death is not something that most people like to dwell on it is, of course, an unavoidable eventuality. If you have children or a partner then the last thing that you want is for them to have to cope with financial problems on top of the stress and grief that they have to cope with should you die, and term assurance is designed to protect them against the financial implications of your death. If you are the main breadwinner, your death could mean the loss of a large proportion of the families income and ultimately, your home.

The cost of premiums for term assurance is based on a number of factors, including your medical history and general health, your lifestyle – such as whether you are a smoker or heavy drinker, your age, and the company through which you take your cover.

The cost of premiums can vary from one insurance provider to another, so it is important to ensure that you compare the costs whilst still making sure that you take out an adequate level of cover to safeguard those you love.

There are several different types of ‘Term Assurance’. They are as follows:

Level Term Assurance

Providing the life assured dies prior to the policy expiry date, the life assurance provider will pay out.

• The amount assured does not vary during the term of the policy, so if you take out a policy for £100,000, it will pay out £100,000 assuming you die within the policy term.

• There is no surrender value on early termination of the policy.

• If the premiums are unpaid, the policy will lapse.

Renewable Term Assurance

On the expiry date, there is an option to take out a further policy without the need for further evidence of health, providing the expiry date is not beyond the insured’s 65 th birthday.

• Whenever the policy has to be renewed, the premium will increase based upon the current age of the life assured.

• If the insured elects to renew the policy, the Insurer (provider) can not decline the policy.

• These policies are good for people who require initial cover but do not know how long they need the cover to last. The policy can then be renewed as many times as required.

Convertible Life Assurance

This is a Level Term policy with the option to convert at any time to a ‘Whole of Life’ policy without the need for further evidence of health.

• Often, part conversion of a policy is allowed rather than converting the entire policy.

• The premiums will be higher on a convertible term policy to allow for the cost of the conversion option.

• These policies are ideal where there is a current need for term assurance and a likelihood of need for a more substantial policy in the future.

Decreasing Term Assurance

Decreasing Term assurance is a policy that reduces each year (or on some occasions – monthly) by a stated amount, where the policy will decrease to nil at the end of the term.

• It is the cheapest form of life assurance you can purchase.

• It is used to protect a reducing debt, for example a repayment mortgage where the capital debt reduces on a month by month basis. The sum assured would be linked to the reducing balance of the loan.

• The premiums have the option to remain constant throughout the term.

Increasing Term Assurance

Because inflation will erode the value of your policy, Increasing Term assurance will increase by a set percentage each year. They are index linked and can be increased each year in line with the Retail Price Index (RPI).

• Most policies will rise by a rate of often 10% each year.

• Cover does not usually extend beyond 65 years of age.

• Most have a conversion to ‘whole of life’ option.

• Some policies reserve the right to be increased at the end of their initial term for a higher amount. e.g, A five year policy holder has the right to increase their policy for up to 50% more than the original policy.

• Whenever the sum assured is increased, the premium will increase correspondingly.

• As the life assured has the option to increase the sum assured without the need for further medical evidence, the premiums are generally a lot higher than for other forms of term assurance.

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