A range of different insurances

Protection Policies

A wide range of protection policies is available. It is therefore impossible to detail every type of policy that you might encounter.

Even so, protection polices can broadly be divided into two: life assurance and health insurance.

Life assurance

The main types of protection life assurance policies are:

Term assurance

At its simplest, a term assurance policy gives you life cover over a fixed term for a fixed premium. There is no savings element, which means that term assurance is one of the cheapest forms of life cover. If you survive until the end of the fixed term, then your policy and your life cover expire: there is no payout. For a small additional cost you can normally incorporate an option to replace and/or extend the policy without having to supply fresh medical evidence.

Mortgage protection assurance

A mortgage protection assurance is a special type of term assurance under which the sum assured reduces each year in line with the amount outstanding on a repayment mortgage. Like other life policies, it can be set up on a joint basis, with the sum assured paid on the first death.

Family income benefit

As the name suggests, the family income benefit policy is designed to provide an income for your family if you or your partner were to die. For example, family income benefit could be arranged to provide payments of £20,000 a year until 2029, starting at the death of either you or your partner. The benefits would be tax-free. For a slightly higher outlay, your cover can incorporate increasing payments, to counter the effects of inflation.

Whole of life policy

Whole of life policies pay a lump sum on death, whenever that happens. As a payment at some point is inevitable, a whole of life policy with a fixed premium will generally cost more than term assurance for the same level of cover. In practice, many whole of life policies now have reviewable (and increasable) premiums, so at least initially the policy may not be that much more costly than a ten year term assurance. Over time, whole of life policies will usually build up a cash value, but they should not be thought of as savings plans. Whole of life policies are often designed to pay out when a couple have both died to meet the inheritance tax bill due at that point.

Endowment policy

An endowment is primarily a savings policy rather than a protection plan. However, it will normally incorporate some life assurance cover, which can be useful if the endowment is linked to repayment of a loan.

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