LIFE ASSURANCE GUIDE
is a life insurance policy which covers the life of a person in monetary terms
in return for a payment, usually monthly, and known as a premium. Term assurance
is the cheapest and simplest form of life cover, providing life assurance for
a fixed term only.
The sum assured
is payable only if the life assured dies within that term.
There is no investment
value to the policy at any time.
In the case of
Level Term Assurance the sum assured does not change during the term of the policy.
Policies are generally used to repay a loan on the death of the borrower (the
life assured). Level Term Assurance is most suitable when the loan has a fixed
capital value that remains unchanged throughout its term.
Assurance indicates that the sum assured decreases over the term of the policy.
This is commonly used to protect a capital & interest repayment mortgage,
where the outstanding balance reduces during the life of the borrowing.
Policies can cover
a single life or be on a joint life basis.
cover is a common additional benefit that can be added to a Life assurance policy.
The sum assured is payable on the conclusive diagnosis of a critical illness,
such as cancer, a heart attack, multiple sclerosis or a stroke.
premiums usually vary depending on whether or not the proposor is a smoker or
non-smoker. A non-smoker is generally defined as someone who has not smoked cigarettes
in the last 12 months. Cigar and pipe smokers are sometimes classed as non-smokers.
The rates will also vary for male / female.)
An endowment policy is a savings policy which provides life assurance cover for
a policyholder. The policy exists for an agreed term, the minimum term usually
being 10 years.
A cash sum is paid
out at the end of the policy term (on maturity), or in the event of the earlier
death of a policyholder, either a predetermined sum (in the event of death) or
an agreed capital sum on maturity. Bonuses are added to the policy, usually annually,
and once added are guaranteed.
This type of policy
has traditionally been used to repay an interest-only mortgage. On maturity the
amount payable is the sum assured plus annual and terminal bonuses that have been
allocated during the life of the policy.
A low cost endowment
policy does not guarantee to repay a mortgage. However, most reputable life offices
will check the performance of the policy ten years before maturity, five years
before maturity and then annually to ensure that it is on target to provide the
required sum. If a shortfall is likely, they will inform the policyholder of what
action to take or options that are available.