Financial Protection

Life Assurance

Life assurance can come in all shapes and forms, thus providing the perfect solution to everyone’s needs. Listed below are some of the key types of such cover: -

Mortgage Protection

This type of lump sum cover is designed to reduce in line with the repayment schedule of that you would see under a capital & interest repayment loan or mortgage. Not only highly appropriate, therefore, for repayment mortgages, but also often written for modern day, interest only mortgages. Whilst the mortgage balance will remain level, the reducing life cover will generally be offset by an increasing value of an associated investment repayment vehicle, such as an Individual Savings Account (ISA) or pension.

Level Term/Indexed Term Assurance

 Written over and above mortgage protection, this is probably the most common type of cover, simply providing a lump sum for a specified term. This can remain level, although in order to offset the real erosion in value caused by inflation, clients may wish to consider an indexed cover.

Family Income Benefit (FIB)

Whilst many clients prefer their life cover in a lump sum format, the purpose of life cover over and above that to protect the mortgage is to provide an income to meet the household expenditure that remains after a mortgage commitment has been discharged. Thus, why not write life cover directly in this form? FIB has three key benefits. The first is that this removes the headache and risk of producing an income from a lump sum investment for what could be a significant length of time. Also, a lump sum is not wholly necessary. Afterall, do you really need the same level of cover in the last year as you do at the outset? An FIB is more appropriate to the actual need as it provides technically reducing cover. Because of this, the final benefit is that it is considerably cheaper than Level Term cover. Thus for the same money you can enjoy a vastly improved level of benefit. See the table below for examples of monthly premiums for this in practice: -

Two key situations where this structure of insurance is highly appropriate is where you are seeking to cover private school fees or court ordered maintenance payments for former partners or children as a result of a family break up.

Whole of Life

This type of cover is often considered by individuals who wish to enjoy long term insurability of unknown duration. A classic case in point is for Inheritance Tax (IHT) planning where these type of policies are written on a second death basis, i.e. the benefit becomes payable on the death of the second to die and not the first death which would otherwise normally be the case.

A further and very important consideration when effecting life cover should be the use of trusts. Without care for such planning, you could be inadvertently creating or accentuating a liability to IHT. As much as 40% of your life cover provision may unknowingly be directed to the Chancellor’s coffers.

Please do not take the decision regarding life cover provision lightly. Although your needs may indeed be satisfied by one simple policy, it may be that a combination of plans may be required.