Which Life Type Of Insurance Policy Is Best?

Summary
There are various categories of cheap life insurance policy available in the market. Many customers are now reaping the benefits of more economical monthly premiums by switching to pension term assurance (PTA) because of the tax benefits on the cost of this type of insurance arrangement. It is not, however, suitable for all customers.

It was revealed recently that the cost of life insurance policies has dropped dramatically in recent years. How do you know what kind of policy is most suitable for people like you?

Term plans are the simplest typeof life insurance plan - you pay a premium every month for a set amount of life insurance for set number of years that the policy will be in force for. If you were to pass away whilst the policy was in place, it then pays out a tax free cash sum.  If the plan comes to the end of its term and you are still alive, no money is paid out.

There are several categories of term insurance: “level” term where the payout is a fixed amount; “decreasing” term, which is always a lot cheaper because the benefit to be paid out falls every year. Normally this sort of policy is taken out to protect a mortgage.

There is also “increasing” term insurance where the insured sum goes up each year; this can be an interesting way of protecting your financesagainst inflation.

Joint life cover is useful for couples who want both of their incomes to pay the mortgage because a payout is made if either policyholder were to die.

Family Income Benefit (FIB) offers the customer’s beneficiaries an annual, quarterly or monthly income from the date of death until the policy comes to the end of its term rather than paying out one cash lump sum.

How much cover you need will relate to your own individual personal circumstances. Most medium and large sized companies offer a death in service benefit which can sometimes pay as much as 4 times your annual income to your partner if you died whilst still in employment. Hence if you are reasonably confident about staying in employment, you may conclude that paying for more life cover with a separate policy was wasteful.

The cost of a life insurance policy depends on numerous factors, such as the type of policy, the length of its term, and certain health criteria, and certain health issues - whether you are over-weight or whether you smoke. Insurers are also especially clamping down on obesity.

There are serious advantages to switching to pension term assurance. If you already have a term insurance policy which pays out a lump sum, you can save a lot  your premiums by shifting to a pension term policy. The reason is because under new pension laws, most plan holders qualify for tax relief on the money they pay for life insurance if they opt for a pension term assurance (PTA) policy. This type of insurance is basically the same as the usual term insurance cover in so far as it is still protection-only. So it pays out if you passed away within the term but if you survive, no payout is given.

However, not everyone stands to benefit from switching to PTA. For instance, if you bought your life insurance plan a long time ago, the more expensive premiums that you may now have to pay owing to the increase in your agecould well outweigh the benefit of tax relief. Similarly, if you have been ill since you bought your cover, you will probably be better off keeping your term insurance.