Choosing the right life assurance

Choosing the right life assurance will enable you to protect your family’s lifestyle in the event of your premature death, help them cope financially and protect them from financial hardship.

That’s why obtaining the right advice and knowing which products to choose – including the most suitable sum assured, premium, terms and payment provisions – is essential.

So what are your options?
The cheapest, simplest form of life assurance is term assurance. It is straightforward protection, there is no investment element and it pays out a lump sum if you die within a specified period. There are several types of term assurance:

Level term assurance – this offers the same payout throughout the life of the policy, so your dependants would receive the same amount whether you died on the first day after taking the policy out or the day before it expired. This tends to be used in conjunction with an interest-only mortgage, where the debt has to be paid off only on the last day of the mortgage term.

Decreasing term assurance – the payout reduces by a fixed amount each year, ending up at zero at the end of the term. Because the level of cover falls during the term, premiums on this type of insurance are lower than on level policies. This cover is often bought with repayment mortgages, where the debt falls during the mortgage term.

Increasing term assurance – the potential payout increases by a small amount each year. This can be a useful way of protecting the initial amount against inflation.

Convertible term assurance – the policyholder has the option of switching in the future to another type of life assurance, such as a ‘whole-of-life’ or endowment policy, without having to submit any further medical evidence.

Family income benefit – instead of paying a lump sum, this offers the policyholder’s dependants a regular income from the date of death until the end of the policy term.

Lifetime protection
The other type of protection available is a whole-of-life assurance policy designed to provide you with cover throughout your entire lifetime. The policy only pays out once the policyholder dies, providing the policyholder’s dependants with a lump sum, usually tax-free. Depending on the individual policy, policyholders may have to continue contributing right up until they die, or they may be able to stop paying in once they reach a stated age, even though the cover continues until they die.

Some plans also offer cover for additional benefits, such as a lump sum that is payable if the policyholder becomes disabled or develops a specified illness.
Whole-of-life assurance policies are often reviewable, usually after ten years. At this point the insurance company may decide to put up the premiums or reduce the cover it offers.