Risk Management:

Life Assurance

Life cover provides a tax free lump sum benefit to the beneficiaries/dependents in the unfortunate event of death during the term of the life policy. There are various types of life cover available and there are a number of ways that this type of benefit can be structured depending on the individual circumstances.

Level Term Cover

A standard Level Term Life Cover provides for a set amount of death benefit usually at a fixed cost for the term of the policy. In general there is no tax relief on the regular premium amounts but, as a result, the benefits are tax free. At the end of the term, the policy will cease and there are no further benefits applicable to the individual (e.g. no surrender value or investment value). Some life assurance providers facilitate the payment of regular income benefits (rather than a once off lump sum) to the next of kin of the deceased for the term of the policy which, in some cases, can be a more appropriate means for providing for dependents.

Mortgage Protection or Decreasing Term Assurance

Many lending institutions insist that life cover is in place so that an outstanding mortgage on a property is cleared immediately in the unfortunate event of death. The repayment of any mortgage or debts through a life policy can help secure the financial well-being of the family.

For a standard capital and interest mortgage (i.e. one that the outstanding loan is reducing each month) the level of cover will be the same as the outstanding mortgage amount at the outset. The level of life cover will decrease in line with mortgage repayments made throughout the term of the loan and policy. In the event that a joint mortgage application has been made, then a mortgage protection policy will pay out the sum assured on the first death. As this cover decreases in line with the reducing loan balance it is often the least expensive form of life assurance.

Convertible Term Assurance

Convertible Term Assurance is very similar to standard life cover in that it provides a tax free lump sum on death but it has an added benefit of allowing the policy holder to convert or extend the cover beyond the term of the existing policy without any medical underwriting. It is a little more expensive than level term assurance or standard mortgage protection cover given that the holder has the option of extending the term of the cover in the future regardless of their state of health.