Choosing the right policy for you
Life assurance can be used to protect income, loved ones and businesses, and in certain circumstances can be arranged in such a way as to minimise the effect of tax. There are many types of life assurance, some of which are mentioned below. Choosing the right one can depend upon a number of factors including tax, cost and the protection required. Lincoln Financial Services can provide you with the help and advice you need.
Use the information on this site to gain a basic understanding of what is available, however this information is only an overview. Only expert, independent advice following a full review of your circumstances will ensure you find a solution that provides peace of mind.
A handy guide to life assurance policy types
Business cover assurance
This deals with protecting your business from the adverse financial effects of the death of a key person, partner or shareholder. Business cover can be especially important to smaller companies whose reliance on key individuals for profit may be greater than large corporates.
There are two main types of business cover, key man and partnership assurance / director share purchase.
Key man is used to inject a lump sum of cash into the business in the event of the loss of a ‘key person’. Partnership / director share purchase deals with protecting the families and co-owners in the event of the death of one of the partners / directors.
Term assurance is generally the cheapest – and simplest – form of life assurance. You insure yourself for a set term – until a loan is paid off, for example. It doesn’t contain any investment element – it simply promises to pay out if you die within the term. If you don’t die within that time, you receive nothing.
Term policies can either be level or decreasing. A level policy simply means the sum assured remains ‘level throughout the term of the policy. If you die on the first day of the policy, you get exactly the same sum as you would if you died near the end of the policy. A decreasing term assurance policy on the other hand, will pay out more at the beginning of the policy than it would at the end.
Whole of life assurance
Whole of life policies are designed to provide life assurance coverage for an individual’s whole life, rather than a specified term. They contain a savings component, the idea of which is to build up a fund in the early years which will subsidise the life assurance cost in the later years. A fixed death benefit is paid to the beneficiary, this is either the sum assured or the value of the investment pot, whichever is the greater.
Premiums are usually fixed for the first 10 years of the policy, and each 5 years thereafter, after which the policy is reviewed and the premiums or the sum assured may need to be amended depending upon investment returns. Management fees also eat up a portion of the premiums.
Whole of life policies can be useful for some people to provide for an inheritance tax liability.
Mortgage protection assurance
Mortgage protection is a kind of term assurance specifically designed to repay, on death, during the term, the amount outstanding on a ‘capital and interest’ repayment mortgage. In other words, if the policyholder(s) die prematurely, the outstanding loan amount on the mortgage will be repaid in full.
Some policies have rider benefits, which are extra sorts of cover, added on to the principal life cover. Such benefits include:
• Waiver of premium benefit – the premiums are in effect paid for you in the event of defined incapacity due to illness
• Income protection benefit – a percentage of your income is paid to you if you cannot work at your usual employment
• Unemployment benefit – a variety of income protection benefit
• Critical illness cover – the benefit is paid before death on the diagnosis of life shortening disease (e.g. cancer). This benefit may replace the death benefit, or it may be paid as well.
All these riders cost extra and are only paid subject to meeting criteria.
For a full review of your circumstances and expert, independent advice
on choosing the right policy, call: 0800 587 4523
Lincoln Financial Services
01522 839 525
0800 587 4523
Lincoln Financial Services Ltd, registered as a limited company in England and Wales under company number: 06262121. Registered Company Address: Oak House, Waterside South, Lincoln, Lincolnshire LN5 7FB.