Life cover pays out a tax free lump sum of money if the individual(s) insured dies within a certain time period i.e. during the term of the policy.
It is a tax free sum and it can be used for a number of reasons. For example:
Ensure the financial survival of your business, in the event of the death of a key employee or director.
Repay your mortgage.
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Level Term Cover
This is also called Term Life Insurance. With this policy, you choose how much life cover you would like (Sum insured) and how long you would like the cover for (the Term). You can insure one person or two people on this policy. If the person insured dies during the term of the policy, a pay-out is made and the policy ceases. If you do not die before the end of the term of the policy, the policy will also cease. There is no savings element to these policies.
Convertible Term Cover
Convertible Term Life Insurance is similar to Level Term Life Insurance but with an added benefit. This type of cover gives you what is called a ‘Conversion Option’. This allows you to extend the cover beyond the term at any time before the expiry of your existing policy without medical underwriting.
In effect, you are setting up a new life insurance policy without having to supply any medical information. It is slightly more expensive than Level Term Assurance as you are paying a higher premium for the option of extending your cover in the future regardless of your state of health.
Whole of Life Cover
A more comprehensive form of Life Cover with no specific term: you are covered until you die, as long as you pay the required premium. They are often used as a means of reducing inheritance tax liabilities. The main difference here is that the premiums are not guaranteed. So, the insurance provider reserves the right to review the premium on the policy at set intervals, usually every 5 years; but in the later stages, this can be as often as every year.
Who can be covered?
Life insurance policies are available on a Single Life basis, a Dual Life Basis or Joint Life basis.
Single Life Cover – One person is insured for the term of the policy.
Joint Life Cover - Two people are covered and the life cover is payable on one death within the term of the policy. When the claim is paid, the proceeds will be paid to the other policy holder.
Dual Life Cover - This is also taken out by two people. The fundamental difference is that a claim can be paid on both deaths. If one person dies, the policy continues in the name of the survivor.
What about Indexation?
Indexation is an optional benefit that allows you to increase your life cover each year in line with inflation. This means that the level of cover that you have will increase each year by a certain percentage. Your premium will also increase each year and the rate your benefit increases is lower than the rate your premium increases. For example, Royal London increase your benefit by 3% and your premium at 4%. Each provider has different rates of indexation. You can opt out of the indexation at any stage during your plan.