Life Assurance Explained

Term Assurance - pays a tax free Lump Sum or Monthly Income in the event of death or critical illness during a specified period in return for a fixed monthly, or annual, premium. At the end of the term the policy finishes and there is no maturity value. As a result this is the lowest cost form of life cover available.

Level Basis - provides a Lump Sum or Monthly Income which will remain constant during the term of the plan

Increasing Basis - provides a Lump Sum or Monthly Income which increases during the term of the plan.

Decreasing Basis - provides a Lump Sum or Monthly Income, which decreases during the term of the plan. Often selected to protect mortgages or loans.

Critical Illness - is an optional extra under most Term Assurance policies. Pays a Lump Sum or Monthly Income in the event of the diagnosis of most critical illnesses, such as Cancer, Heart Attack, Stroke, Major Organ Transplant, and Major surgery and up to 30 conditions. Can also be paid as a lump sum or income in the event of Total & Permanent Disability.

Terminal Illness - This benefit means that the sum assured will pay out if you are diagnosed as having less than 12 months to live - in simple terms an advance payout. Most providers include terminal illness as standard with no additional cost. Should not be confused with Critical Illness benefit.

Benefit Amount - This is the Tax-Free amount that will be paid out by the policy.

Lump Sum - This is the Tax-Free amount that will be paid out by the policy as a lump sum. Usually the most suitable cover for mortgages and other loans.

Monthly Income - This is the Tax-Free amount that will be paid out by the policy as a monthly income. Usually the most suitable cover to protect dependents loss of income for living expenses left after loans are settled. This is often not considered and where most people are underinsured.

Renewable Basis - The policy is automatically renewable after five or ten years for the same additional period. It can be renewed without medical evidence

Tax-Free - Term Assurance benefits are paid without tax liability under present UK tax laws.

Term - The number of years until termination of the policy.

Trusts - You should consider putting your policy in trust. The proceeds of your cover will then be paid directly to your dependants without becoming part of your estate, and thereby incurring inheritance tax payments.

Waiver of Premium - Premiums are paid by the insurer if you become disabled or ill, and unable to work for the deferred period set - usually six months.