Life insurance is a simple and cost-effective solution to protect your family and loved ones in the event of your death by paying out a cash lump-sum amount.
If written into trust* the policy proceeds can be paid out tax-free on a claim.
The lump-sum can be used to pay off a mortgage; or to create a continuous income to ensure your family are given financial security even when you’re no longer around.
Death is the one certainty in life! Not knowing when it will happen is an uncertainty you can insure against. If you died tomorrow, how would your family keep a roof over their head, eat and keep warm?
Guaranteed premiums ensure you know for certain that the cost of your premiums won’t change throughout the term of the plan. And it’s important to know the younger you are when you take your policy out, the lower the premiums are as you are seen to the insurance company as lower risk. So it makes sense to know you’re protected for the long-term and take out cover on your life as early as possible.
As a guide, a 40-year-old non-smoker in good health taking a plan with a £1,000 per month (pm) benefit in the event of accident/illness or redundancy, on a 30-day back to day 1 basis for payment, will pay between £49pm and £63pm, depending on the qualification period of the redundancy cover. (Source: iPipeline July 2018).
Which option is best for you?
Roxburgh Financial Management was set up to provide specialist help to people unsure how to go about choosing from the many protection products available. For example, at no extra cost it is possible to include cover for your children and many companies now offer cover which will pay out in all events without any exclusions. So it’s important to make sure that if you’re buying a policy it’s the right one for you.
Our specialists will help you navigate all the options to find the best cover that is right for you and your family at an affordable rate.
* Trusts are not regulated by the Financial Conduct Authority
Five reasons to use us
1. We offer insurance advice with no obligation
2. We will explain the good, the bad, and the ugly
3. We will ask the right questions
4. We do all the work, right through to helping complete the application form
5. We can access a comprehensive range of insurance providers
Types of life insurance
There are several types of insurance available dependent on your individual circumstances. Listed below are the different types of life insurance.
Level Term life insurance
Level Term life insurance is the most straightforward type of plan available. The plan holder pays a premium, usually each month to the insurance provider to ensure that an ‘agreed amount’ (the benefit) is paid out should the person insured die within the agreed number of years (the term). Level Term life insurance is commonly used to pay off an interest-only mortgage (as the debt remains the same over the life of the mortgage) or provide simple family protection.
Decreasing Term life insurance
Decreasing Term life insurance starts off at an ‘agreed amount’ (benefit) and then reduces over the length of the term. The plan holder pays a premium, usually each month, to the insurance provider to ensure that the ‘decreasing amount’ (the benefit) is paid out should the person insured die within the agreed number of years (the term). The amount you pay (the premium) is fixed throughout the term of the policy. The premium level is lower than that of Level Term insurance due to the benefit amount decreasing.
Decreasing Term insurance is commonly used to pay off a repayment mortgage, with the term of the plan matching the outstanding term of the mortgage. The plan is designed to repay the outstanding mortgage balance subject to: all mortgage payments being made, no alterations to the term throughout the plan and that the interest rate does not exceed a specified level.
Increasing Term life insurance
With Increasing Term life insurance, a sum assured (benefit) is chosen which increases over time. An insurer is paid a monthly premium by the policy holder throughout the term to ensure that the ‘increasing amount’ is paid out should the plan holder die within the policy term. The sum assured will increase each year at an agreed rate, usually that of the Retail Price Index (RPI) or the Consumer Price Index (CPI). This is called “indexation”. As your benefit increases, so does your premium. Indexation is chosen to ensure the purchasing power of your selected benefit is ‘future-proofed’; as it will increase as the cost of living goes up i.e. with inflation.
Whole-of-life insurance is an on-going insurance without a specified term to ensure the proceeds are paid out whenever death of the plan holder occurs. Providing all premiums have been paid to date, the policy is certain to pay out whenever the event of death occurs; which means premiums are usually more expensive than Level Term insurance.
Whole-of-life insurance policies are commonly used to pay Inheritance Tax liabilities and ensure more of an estate is passed on to beneficiaries. To ensure the proceeds of the life insurance policy are not included in an estate, though, it is vital that the policy be written in trust.
Family Income Benefit life insurance
With Family Income Benefit life insurance the plan holder pays a premium to ensure that a regular income (the benefit) is paid to the family should the person insured die within the agreed number of years (the term). The benefit of Family Income Benefit life insurance is that the individual can choose to base it on individual circumstances, such as regular outgoings, or school fees, making it easier to determine how much you need and more tailored to the individual. For example, if your regular income provides you with £2,000 a month, then you can arrange for the policy to provide the same amount to be paid out to your family in the event of your death. It also means any decision-making by the beneficiaries has been removed at the point of claim as to investment plans etc. as the regular income amount has already been arranged.
Joint life insurance
For couples who both want to be insured there is an option of a joint life policy rather than two individual plans. The premium paid on a joint policy is likely to be less, although not significantly, than the premium spent on two separate policies. However, if plan holders have financial dependants you may feel the slight additional cost for two policies is worth considering as it then means dependants potentially benefit from double the pay-out should both die during the policy term(s).
It is also worth considering, should there be a change in the relationship at some point during the plan term coming to an arrangement for continuing with a joint plan may not be possible and the policy may then need to be cancelled. If this were to happen, obtaining replacement cover could prove difficult due to increased ages or if there have been changes in state of health. This may make getting cover not possible or at the least more expensive than if single life plans had been taken out.
Some joint life insurance policies will only pay out after the second death has occurred which would mean that after the first person dies the surviving partner would not receive a pay-out.
Life insurance with critical illness cover
Most life insurance policies will give the option to include cover should the plan-holder be diagnosed with a specified critical illness. Where life insurance will only pay in the event of death, a Life and Critical Illness policy also insures the plan holder in the event of diagnosis of a number of serious illnesses as defined by the insurer’s terms. These conditions include, for example: cancer, heart attack, stroke, and multiple sclerosis. Most providers also include Children’s Critical illness as a definition. A combined life insurance with critical illness policy usually pays out in the first event of either death or diagnosis of a serious illness.
Often the price of a standalone critical illness plan is exactly the same as a life policy with critical illness cover so usually people take out a plan which would provide cover in the event of death or critical illness. This is due to certain insurer tax advantages available for life insurance plans and also the fact that there is much higher chance of suffering and claiming on a critical illness before death.
It’s also possible to take out a policy that can be claimed on in the event of a diagnosis of a critical illness and again in the event of death. Life insurance with critical illness policies provide financial support should the plan holder suffer a serious illness and survive; but where they may require lifestyle changes, such as reduced working hours, stopping work completely or even modifications to a home.
Ultimately, though, it’s up to you as the plan holder how you wish to spend the lump sum pay-out.
Low-start life insurance
Low-start life insurance is where the premiums are low at the beginning of the policy term and then rise each year at a fixed rate. The increases can often be opted out of, and in some cases switched to level payments; which may then reduce the amount of benefit received. The cost over the whole term may be higher than a level policy, but can help make the premiums more affordable earlier in the policy term and more able to get the cover needed until the policy holder is in a stronger financial position.
Low-start life insurance policies are commonly used by first-time buyers who may have a limited budget right now but need a fixed amount of cover for a mortgage.
Life insurance options
As with all things, the more options you choose the higher the price. Life insurance is no different and different insurers load the options differently. It is therefore important to determine what you need and what you would like so we can find the best life insurance policy available to you in the market place. Below are some of those options.
Guaranteed or reviewable
With guaranteed premium policies, the basic premium you pay stays the same throughout the policy term unless you increase the required income amount (or if you have indexation).
A plan with reviewable premiums is reviewed by the provider each year (like home insurance) and a new set of terms are then issued for the next 12 months. There may be no change. But, the provider can change the premium.
Level or indexed
‘Level’ means that the amount you receive will remain the same throughout the time you have the insurance, regardless of whether your income or expenditure increases. Alternatively, the amount you receive can increase each year in line with inflation, using either the Retail Price Index (RPI) or the Consumer Price Index (CPI).
Waiver of premium
If ‘waiver of premium’ is included in the plan then if you are signed off work for typically more than 6 months, a valid claim on this part of the cover will enable the provider to suspend the premiums until you are back to work. You therefore do not have to worry about finding the money to pay for this part of your protection planning.
If a renewable term is chosen then cover can be extended at the end of the original term for a set period of time, in some instances without the insured having to provide additional medical information.
Some specified pre-existing medical conditions may be covered by some insurance providers but others may not. There are also exclusions specified by each individual provider; for example alcohol or drug abuse may void the policy and result in non-payment of a claim.
If cover is provided on non-standard terms or even on smoker rates, and you change your lifestyle during the term in a way that you think should reduce the likelihood of a claim, for example you have stopped smoking, some providers will allow the cover to be reviewed mid-term.
A convertible plan allows the plan to be converted to a whole-of-life policy without having to provide any further medical information. Premiums for this type of policy are higher at the outset than for standard life insurance policies. Once the policy converts to a whole-of-life plan the premiums are also likely to increase.
Cover Increase option
There is often an option to change cover without further medical information if your circumstances change often due to a significant life event. Providers options vary but some examples are: marriage, divorce, increased mortgage amount, birth or adoption of a child, and salary increase.
Accidental Death Benefit
Accidental Death Benefit will pay out if you die as a result of an accident while your application is being underwritten.
It’s recommended that a life insurance policy is written into trust to avoid the proceeds of the plan contributing to the value of your estate. This can mean that any pay-out won’t be liable for Inheritance Tax (IHT). Putting your policy into trust not only means any pay-out is ring-fenced from your estate for Inheritance Tax purposes, it also means they can get the money much quicker as they can bypass probate.
Under current legislation the Inheritance Tax threshold is £325,000 for a single person or £650,000 for married couples and registered civil partners. IHT is charged at 40% on anything you leave over these amounts when you die. With the average house price in the UK currently £218,255 (March 2017 HM Land Registry).
, potentially millions of homeowners risk leaving a tax bill.
When a discretionary trust is set up, the insured person can name all of the people who may want to benefit from the plan proceeds in the future. Trustees are also named. The trustees are the people who will be the legal owners of the trust fund and responsible for managing the proceeds of the plan and distributing them amongst the beneficiaries.
Terminal illness benefit will mean the life insurance benefit will be paid out early if you are diagnosed with less than 12 months to live. Some providers will exclude this benefit in the last 12 or 18 months of the plan term whereas there are providers who will keep this benefit throughout the entire policy term.
Children’s critical illness cover
Some policies include cover for any natural, adopted or step children as part of their standard definitions. This benefit will pay out an additional lump sum if any of your children are diagnosed with a critical illness or to lose their life during the policy term.
Child accident hospitalisation cover
This is a special payment is made if a natural, adopted or step child is admitted to hospital due to physical injuries for a specified minimum number of consecutive days, immediately following an accident.
A special payment paid alongside a claim for critical illness where the insured person has a natural child, legally adopted child or step-child under five years old.