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The guidance and/or advice contained
within this website is subject to the UK regulatory regime and is
therefore primarily targeted at consumers based in the UK. |
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Life Assurance is a complex subject and only some elements are
covered here.
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Whole of Life |
Endowment |
Term Insurance |
Health-Related
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| TYPES OF LIFE ASSURANCE |
| What are the different types? |
| There are several types and variations of
life assurance. The main ones are as listed below. |
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Whole-of-Life (WOL) |
| Pays a lump sum on death, whenever it occurs.
The size of lump sum might be fixed or variable. Typical uses are for Inheritance
Tax-planning, general financial protection and to pay for funeral costs
etc. |
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Endowment |
A savings plan with some built-in life
insurance cover. Pays out a lump sum on death if you die during its term OR
a lump sum on your survival to the end of the term.
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Maximum Investment Plan (MIP) |
A unit-linked endowment savings plan.
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Low-Cost Endowment (LCE) |
An endowment with a greater emphasis on
protection (the built-in death benefit is higher). Usually used for paying
off part / all of a mortgage. The death benefit is usually about the same
size as the relevant mortgage debt.
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Low-Start Endowment |
| The premiums start off lower but increase
yearly for a few years. |
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Term Insurance (TI) |
Pays out the benefit if death occurs during the
term of the policy (usually X years or before age Y). On survival to the end of
the term, cover usually just ceases, with no accrued value to the policy. Some
variations are shown below.
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Level Term Insurance (LTI) |
The size of potential benefit is fixed.
The most frequent use is for family financial protection.
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Convertible Term Assurance (CTA) |
Usually level cover with the extra benefit of
being able to alter the cover later on - usually with little or no further
medical evidence. Under normal circumstances, the right to convert cannot be
refused by the life office. The cover might be altered to another term insurance
/ a whole-of-life policy / an endowment. The cost of the new cover is based
upon the type, size of benefit, and your age at the time of converting.
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Decreasing Term Insurance (DTI) |
The size of death benefit decreases
(usually by equal amounts) during the policy's term. A popular use is for
family's financial protection.
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Mortgage Protection Plan (MPP) |
A type of Decreasing Term Insurance where the
size of benefit decreases in line with the amount outstanding under a repayment
mortgage.
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Gift Inter Vivos Cover |
The size of death benefit decreases in line with
the potential Inheritance Tax liability due on death in respect of a
lifetime gift which exceeds the Nil-Rate Band. The cover lasts for 7 years.
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Family Income Benefit (FIB) |
Instead of a lump sum payable on death, the
benefit is payable in regular instalments which last until the end of the
policy's term. The most frequent use is for family financial protection.
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Increasing Term Insurance (ITI) |
| The size of lump sum payable on death gradually
increases during the term of the policy. |
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There are other variations as well, and the above
is only a basic outline.
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<Top of Page> |
| What about illness rather than death? |
As you'd expect by now, there are variations.
The main ones are as listed below.
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Critical Illness Cover (CIC) |
Would pay a lump sum benefit to you, if you
survive the medical diagnosis by (usually) a month or so of one or more specified
serious medical conditions during the term of the cover.
The relevant medical conditions usually include:
> heart attack (some forms of),
> cancer (some forms of),
> stroke,
> coronary heart disease,
> kidney failure,
> major organ transplant,
> paralysis,
> multiple sclerosis.
> Other conditions might also be included.
The lump sum could be used to pay off a debt / for medical machinery / a
stair-lift / home alterations, adapted car / convalescence / etc.
People most likely to need CIC include the Self-Employed and other business owners,
and anyone (especially single people) who has a mortgage.
Employers can have a CIC policy to protect against the financial consequences
of a key employee suffering a heart attack, etc.
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Permanent Health Insurance (PHI) |
Also known as 'Income-Protection'.
Pays an income to you after an initial 'deferred' period (e.g. 6 months)
of incapacity if a serious accident or illness prevents you from
continuing to earn a living during the policy's term (until the
cessation age).
The income continues for as long as reasonably necessary during the term - perhaps
even until your planned retirement age.
The income is tax-free for personally-owned policies.
There is usually no benefit payable after you die (cover would just cease).
There are different definitions of incapacitation:
> any occupation (or 'Activities of Daily Living' may be used for
house-persons)
> suited / similar occupations
> own / current occupation (this definition might be applied for an initial
claim period only).
Some benefit might be offered if you can return to work only on a part-time basis
and/or to a lower-paid job. Some insurers allow you to continue cover during a
career break.
People most likely to need cover are main breadwinners and anyone who has a
mortgage.
Employers can have a 'group' plan for staff, to enable (taxable) salary
payments to continue, at say 50% of normal salary.
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Waiver of Premium (WOP) |
This is usually an add-on to a policy (for
life assurance or regular pension investment).
This cover comes into action after a period of incapacity. The insurance
company will, in effect, pay your associated life assurance or pension premiums
for you whilst you're incapacitated.
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Terminal Illness Benefit (TIB) |
This is usually an add-on benefit to a
life assurance policy.
If this benefit is included, the insurance company will pay out the lump sum
earlier than otherwise: if you're medically diagnosed as having only a
short while left to live.
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Accident, Sickness & Unemployment (ASU) |
| Would pay you an income after a short
initial 'deferred' period (e.g. 4 weeks) of not earning. The benefit is payable
for a few months (e.g. up to 6 or 12). The most common use is to cover
monthly mortgage payments. Should you be unable to continue working
due to an accident or sickness - or become involuntarily unemployed - then the
income can help to tide you over for a while. |
| For Accident, Sickness & Unemployment cover,
we usually offer products from only one provider. |
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| FURTHER INFORMATION |
| Please contact
us if you would like further information. |
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| <Top of Page> |
The editorial here does not constitute
personal advice.
It reflects Bernas Coni Warren's understanding of current law and tax
practice, and is without prejudice.
No liability shall attach.
Errors & Omissions Excepted.
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| © Copyright Bernas Coni Warren |
www.BernasConiWarren.com
01275
83 73 03
7 School Close, Whitchurch,
Bristol, BS14 0DU |
Bernas Coni Warren is an appointed
representative of Sesame Ltd, which is authorised and regulated by the
Financial Services Authority.
Sesame is entered on
the FSA Register
under reference 150427. |
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