Pension Life Insurance Arrives
Summary
There are various types of cheap life insurance cover available in the market. Many clients are now benefiting from lower premiums by moving to pension term assurance (PTA) because of the tax relief available on the cost of this type of insurnace plan. It is not, however, suitable for all clients.
It was revealed recently that the cost of life insurance plans has fallen greatly in recent years. How do you know what kind of policy is most suitable for people like you?
Term policies are the cheapest and simplest typeof life insurance plan – you pay a regular premium each month for a set amount of life insurance for a fixed term that the policy will run for. If you die, it then pays out a lump sum. If the insurance policy comes to the end of its term and you are still surviving, no money is paid out.
There are several categories of term insurance: “level” term is where the payout is a set amount; “decreasing” term, which is always much cheaper because the cash to be paid out reduces each year. For most clients this sort of insurance plan is taken out to protect a mortgage.
Another option is “increasing” term insurance where the cover goes up each year; this can be a good way of protecting your financesagainst inflation.
Joint life insurance plans are very benefitial for couples who require both of their incomes to pay the mortgage because a payout is made if either partner dies.
Family Income Benefit offers the plan holder’s beneficiaries a regular income from the date of death until the policy ends rather than paying out one large lump sum.
How much cover you need will relate to your own individual personal circumstances. Most medium and large sized businesses offer a death in service benefit which can usually payout up to 4 times to your partner if you died whilst still in employment. Therefore if you are reasonably confident about remaining with that firm, you may decide that paying for extra life insuranc with a separate policy was superfluous.
The cost of a life insurance policy depends on a few factors, such as the type of policy, the length of its term, and certain health criteria, and certain health questions – whether you are over-weight or whether you smoke. Insurance companies are also pushing up premiums for those policy holders who are over-weight.
There are serious advantages to switching to pension term assurance. If you already have a term insurance cover which pays out a cash sum, you can save a lot your monthly premiums by changing to a pension term policy. This is is because under new pension laws, most people qualify for tax relief on the money they pay for their life cover if they opt for a pension term assurance (PTA) policy. PTA is basically the same as the usual term insurance in so far as it is still protection-only. So it pays out if you passed away within the term but if you survive to the end of the policy, the policy has no value.
Not everyone stands to gain from moving to PTA, however. For instance, if you bought your life insurance plan a long time ago, the higher premiums that you may now have to pay because you will then be oldercould well outweigh the benefit of tax relief. Similarly, if you have been seriously ill since you bought your life insurance, you will probably be better off keeping your existing life insurance cover.