International Insurance

Posts Tagged ‘Life Insurance’

The average man in the street assumes that Life Insurance and Life Assurance are names for the same form of insurance. How wrong they are! But don’t hang your head in shame, many financial commentators get it wrong too! Life Insurance and Life Assurance perform different financial roles and are poles apart in cost – so it helps to surf for the correct product.

Life Insurance provides you with insurance cover for a specific period of time (known as the policy’s “term”). Then, if you were to die whilst the policy is in force, the insurance company pays out a tax-free sum. If you survive to the end of the term, the policy is finished and has no residual value whatsoever. It only has a value if there is a claim – in that context it’s just like your car insurance!

Life Assurance is different. It is a hybrid mix of investment and insurance. A Life Assurance policy pays out a sum equal to the higher of either a guaranteed minimum underwritten by the policy’s insurance provisions or its investment valuation. The value of the investment element is then a reliant on the Insurance Company’s investment performance and length of time you have been paying the premiums.

Each year the insurance company adds an annual bonus to the guaranteed value of your life assurance policy and there is normally an extra “terminal bonus” at the end. Therefore, as the years go by your life assurance policy increases in value as the investment bonuses accumulate. The value of these bonuses are then determined by the insurance company’s investment performance. Once investment value has been assigned to the policy, you can cash it in with the insurance company. However, most people get a far better price for their life assurance policy by selling it to a specialist investment broker rather than cashing it in with the insurance company.

If you were to die during a Life Assurance policy’s term, the policy pays out the higher of either the guaranteed minimum sum or the accumulated value of the annual investment bonuses. However, if you are still living when the policy terminates, you usually get a bigger payout. This is because with most insurance companies, an additional terminal bonus is awarded.

There is a also a specialised form of life assurance called “Whole of Life”. These policies remain in force for as long as you live and as such, have no preset term.

There is also a practical difference for the internet user. Whereas you can buy life insurance online, the Financial Services Authority view life assurance as fundamentally an investment product. As such they believe it is best suited to being sold by a Financial Adviser with advice based on the Advisors full understanding of your personal details. Therefore, you will be unable to buy life assurance online. However, you can use the internet to find a suitable financial adviser with whom you can meet and discuss your requirements.

What are Life Insurance polices and Life Assurance policies used for?

Life Insurance is usually a focal point of the family’s financial protection. It is ideally suited to ensure that known debts such as a mortgage, are repaid in full in the event of the policyholders death.

When it comes to providing a lump sum for general use in the event that the policyholder were to die whilst the policy was in force, either life insurance or life assurance can be used. The differences are that with life insurance the size of payout would be preset whereas with life assurance it would depend on the guaranteed minimum and the insurance company’s investment performance. But remember, at the end of the policy’s term life insurance is worthless, whereas life assurance should payout a sizeable investment sum. In this context Life Assurance seems far more worthwhile but in practice more people elect for life insurance. Why? It’s a matter of cost. Life Insurance is considerably cheaper than Life Assurance. Furthermore, in recent years, investment returns on Life Assurance policies have fallen significantly and many insurance companies have placed penalties for cashing in policies early. This has adversely affected the resale value of Life Assurance policies.

Finally, if you want a product to provide a lump sum on your death whenever that is with a minimum payout guaranteed, you’ll probably elect for Whole of Life insurance. It’s really a form of lifetime investment with the benefit of a guaranteed minimum. They’re particularly useful for Inheritance Tax Planning.

Life Insurance companies have a number of differenct policies to cater for different events, there are some polices which are based of your life whilst others are based on property or employment. It is prudent to understand the meaning of all the financial products out there so that if you do come accross unscrupulous sales people you will be able to hold your ground. Here are the main types of financial protection cover.
LIFE INSURANCE

Provides a lump sum on the death of the policy holder, depending on the policy there may be a guaranteed payment or if the basic level term assurance policy is taken out then the life assured can only receive the lump sum if they die during the life of the policy.

INCOME PROTECTION INSURANCE

Provides a regular income when the insured is unable to work due to accident or illness, the payments that are made are usually lower than the salary and decreases over a number of cycles to ensure that the plicy holder activley looks for work when they are fit.

CRITICAL ILLNESS COVER

Provides a lump sum if the life assured is diagnosed as suffering from one of the listed critical illness. These critical illness are determined by the life company and range from paralysis to strokes, the more illnesses you have the higher the premium becomes.

MORTGAGE PAYMENT PROTECTION INSURANCE

Provides a regular income to cover mortgage repayments if the insured is unable to work due to illness, accident, redundancy or unemployment. The payments are level and only last until the policy holder is able to find paid employment.

PERSONAL ACCIDENT AND SICKNESS INSURANCE

Provides a lump sum or income benefits if the insured falls ill or has an accident, premiums depend on the type of employment you have or the lifestyle you live, stuntmen will have to pay a greater premium compared to office workers.

LONG TERM CARE INSURANCE

Provides cover towards the costs of long term care due to old age or infirmity. Premium depends on how healthy the policyholder is at the time of taking out the policy, a fitter person usually pays less than a person who has a long medical history.

SUMMARY

Bear in mind that it is possible for different types of cover to be provided by one single contract. For example term assurance can include critical illness cover as a option. Make sure you have adaquate cover and find out if you are insured for the same cover more than once – you will be paying more premiums than you need to. The best way to assess this is to seek the advice of a Independent financial advisor who will be able to assess your existing polices and provide you with the right cover at the right price.