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Family Protection
LIFE ASSURANCE falls into two groups, the first where there is no death during the policy term and you will get nothing back, such as
RELATED PAGES : Critical Illness and Long-Term care, Secured Loans and Mortgages
LEVEL TERM ASSURANCE
This type of plan pays a lump sum in the event of death of the policyholder
during the term of the policy. As the policy contains no investment element,
there are no maturity proceeds where death has not occurred during the term.
There is no early surrender value. For these reasons the premiums are usually
low. The benefit payable is level throughout.
REDUCING TERM ASSURANCE
This is sometimes described as Mortgage Protection Assurance. It is similar
to Level Term Assurance but the initial benefit reduces each year. It is used
where the capital outstanding on a loan reduces each year. Because of the reducing
cover, the premium is usually the lowest.
CONVERTIBLE TERM ASSURANCE
This type of policy is again similar to Level Term Assurance (above) but
it can be converted into an Endowment or Whole Life plan, regardless of your
state of health, at the time of conversion. The conversion must take place on
or before expiry of the initial term. The premium is usually slightly higher
for the same level of cover than that of Level Term Assurance.
RENEWABLE TERM ASSURANCE
Whereas Level Term Assurance will expire at the end of its initial term,
Renewable Term Assurance gives the option to replace the initial cover with
a new contract, regardless of your then state of health. Whereas the new premium
may reflect your additional age, no account will be taken of any deterioration
in health. This is particularly valuable as you may otherwise be uninsurable
for medical reasons at that time. The initial premium for this type of contract
is usually more than that for Level Term Assurance.
FAMILY INCOME BENEFIT
This is similar to a Term Life Assurance contract which, instead of paying
out a lump sum in the event of death of the policyholder during the initial
term, it will pay out the benefit as a regular amount from the date of death
up to, but not beyond, the expiry of the policy term. The contract does not
contain any investment content and there is no surrender value.
WHOLE OF LIFE POLICIES
Unlike Term policies which expire after a set period, Whole of Life policies,
as it suggests, can provide life cover without any time limit being imposed.
As long as the premium is being paid, the policy will continue for the lifetime
of the policyholder.
Because there is a certainty of a payout at some time, ie the death of the policyholder, the premiums are likely to be more expensive than ordinary Term policies.
ENDOWMENT POLICIES
A full Endowment policy is a policy which runs for a set period whereby
the premium buys life cover and an investment return on the accumulated premiums.
The percentage rate of investment return is not guaranteed as it will depend upon the investment returns obtainable in the marketplace generally, from which will be deducted the life company's administration costs.
It is usual that annual bonuses are declared (called reversionary bonuses), which once added to a 'with profits' policy cannot be taken away.
Although there is no guarantee, it is also quite common that in addition to the annual bonuses, at the end of the policy period, a terminal bonus is declared. These terminal bonuses can be quite substantial.
The premium for a With Profits Endowment is higher to reflect the potential for an investment return.
LOW COST ENDOWMENT POLICY
In order to find a compromise between an investment return but at a more
affordable premium, Low Cost Endowment policies were introduced by most life
companies.
It is a combination of an Endowment With Profits policy and a Decreasing Term Assurance. These policies have been typically used to fund a mortgage repayment where just the interest is paid each year.
If bonus rates are at or above projected levels, the maturity proceeds should be sufficient to repay the whole of the capital at the end of the loan period. However, as investment returns can fall as well as rise, there is no guarantee that this will occur. It may be necessary to take out additional policies to ensure that the loan is repaid at the due date.
On premature death during the term, the loan will be repaid by the combined value of the Endowment element and its related Decreasing Term Assurance portion.
The policy will show an amount for 'the basic sum assured' which is the element which will attract bonuses, and the 'death benefit sum assured' which is the guaranteed amount payable on premature death. On premature death the greater of the 'basic sum assured' or the 'death benefit sum assured' will be payable.
A traditional With Profits policy will add bonuses to a 'basic sum assured'. This is the minimum that would be paid out at maturity assuming premiums are maintained.
A unit linked Low Cost Endowment is a variation of the 'traditional Low Cost Endowment' (above). Bonuses are added either by increase to the unit price or via the addition of bonus units, where the unit price stays the same and more units are added to the policy.
As with other policies, premiums for the same level of cover vary considerably, and it is wise to obtain through ourselves, the top most competitive premiums.
An endowment is a medium to long-term investment and if surrendered in the early years you may not get back the amount invested.