What Actually Is “Life Insurance”?

Tuesday, July 28th, 2015

The term ‘life insurance’ is used to describe a number of different types of cover, each with its own features and benefits. Although they work in different ways, they all have similar aims – to offer you and your family financial peace of mind and to help you protect your future.

Here at Caboodle Finance in Sutton Coldfield, Birmingham, we use the following summary (listed in no particular order of priority) to convey the main points of difference to our clients.

Level Term Life Assurance (LTA)

A Level Term Assurance policy pays out a sum of money in the event of your death during the term of the policy. It’s called a ‘level term assurance’ because the amount of cover (also known as the ‘sum assured’) stays the same throughout the length of the policy. The sum assured and the term are set at the start of the policy. The benefit is paid tax free and can be used by your beneficiary however they choose. Level term life insurance is often taken out to help pay off a mortgage and is most suited to interest only mortgages, where the amount outstanding does not decrease over time.

Decreasing Term Life Assurance (DTA)

Decreasing Term Assurance also pays out a lump sum in the event of your death, however the amount paid out decreases over time. This type of life insurance policy is usually taken alongside a repayment mortgage so that the amount paid out is about the same as the amount left on the mortgage. As the amount of cover decreases over time, the premiums for decreasing cover are typically slightly cheaper compared to level cover.

Family Income Benefit (FIB)

Family Income Benefit is a different type of life insurance that is designed to pay out a regular, tax-free income in the event of death. This can be a suitable option for people who want the beneficiary to receive a regular income, rather than a lump sum. The term of the policy can be chosen to fit your family’s circumstances and the amount of cover you chose can be linked to inflation to ensure that, in the event of a claim, the benefit keeps its real value and spending power.

Critical Illness (CI)

A critical illness policy is designed to pay out a tax-free lump sum if you are diagnosed with a serious illness such as cancer, heart attack or stroke (and many other illnesses depending on the policy). The money is paid upon diagnosis and you can use it however you wish – whether that’s to pay off your mortgage, pay for medical treatment or drugs or even take a holiday.

Because Critical Illness cover is designed to cover a specific list of illnesses and events, the quality of the policy you take out is key. Whilst some policies are cheaper than others, they may not cover you for certain illnesses that other, more comprehensive policies do.

In summary, a really great professional advisor should have access to all of these Life Insurance products and be able to guide prospective clients as to their best options in all circumstances.

Call Caboodle Finance, Birmingham today on 0800 151 2407 or click just HERE to contact us by email to see how we can help you do exactly that!