Summary
There are various categories of cheap life insurance policy available in the market. Many people are now seeing the benefits of lower premiums by changing to pension term assurance (PTA) because of the tax benefits available on the cost of this type of insurance policy. However it is not suitable for everyone.
Recently it was revealed that the cost of life insurance policies has reduced big style in recent years. How do you know what kind of policy is most suitable for you?
Term plans are the simplest typeof life insurance – you pay a regular premium each month for a set amount of cheap life insurance for an agreed number of years that the policy will be in force for. If you die whilst the policy is in force, it then pays out a tax free cash sum. If the policy reaches the end of its term and you are still surviving, no money is paid out.
There are several sorts of term insurance: “level” term where the payout is a set amount; “decreasing” term, which is usually significantly cheaper because the cash to be paid out drops each year. Normally 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 coveragainst inflation.
Joint life insurance policies are benefitial for couples who want both of their salaries to help meet the mortgage because a payout is made if either policyholder dies.
Family Income Benefit (FIB) offers the beneficiaries an annual, quarterly or monthly income from from the date the policyholder dies until the end of the policy term rather than paying out one large lump sum.
How much cover you need will relate to your own individual position. Most medium and large sized organisations offer a death in service benefit which can pay out 3 or 4 times to your partner if you die whilst being employed. Therefore if you are reasonably confident about staying in employment, you may reach the conclusion that paying for additional life insurance with another arrangement was unnecessary.
The cost of a life insurance policy depends on a few factors, namely the length of the policy’s term, the type of policy and certain medical criteria, and certain medical issues – whether you are fat or whether you smoke. Insurance underwriters are also increasing premiums for those who are obese.
There are serious advantages to switching to pension term assurance. If you already have a term insurance policy which pays out a l;arge tax free lump sum, you can save a considerable amount on your monthly premiums by changing to a pension term plan. This is is because under new pension arrangements, most plan holders qualify for tax relief on the money they pay for their life insurance plan if they opt for a pension term assurance (PTA) policy. This sort of insurance is basically the same as standard term insurance cover in so far as it is still protection-only. So it pays out if you die within the period the insurance was in force but if you live to the end of the insured period, the policy has no value.
Not everyone stands to benefit from switching to PTA, however. For example, if you bought your life insurance a long time ago, the larger 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 policy, you will probably be better off keeping your existing life insurance cover.
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