Posted on: November 1, 2024
What is Life insurance and how does it work?
Life Assurance provides cover for a lump sum in the event of a person’s death. It is generally paid to a beneficiary, perhaps a spouse, partner or co-mortgagor.
Unless you are single with no dependents, life assurance is particularly important if you have a mortgage on your own or with another person, a co-dependent partner or, dependents. Picture the situation where you are someone you are finically interdependent on were to die? How would you replace their income, what would your finances look like, could you maintain mortgage or rent payments? It is certainly fair to say that a mortgage lender will expect mortgage payments to be maintained and if this is not the case there is a risk that you could lose your home.
So what’s the difference between Life Assurance and Life Insurance…..?
Life Assurance pays a tax free lump sum to your designated beneficiary during a specified period. Therefore if you survive for the period the policy does not pay out. Therefore Life Assurance pays for something that “might happen”.
Life Assurance pays out for something that will happen and therefore these policies tend to be “Whole of Life” rather than a specific term.
When protecting family or a mortgage debt, policies tend to be “Life Assurance” otherwise known as term, decreasing or increasing term assurance or Family income benefit policies. Because a person generally knows how much cover they want and for how long.
As we have already said the benefit payment is made when the policy holder dies during the term, however insurers usually include terminal illness cover as well. This is not “critical illness cover” as this is an entirely different policy. Terminal illness cover usually pays the death benefit or sum assured in the event that the policy holder has less than 12 months to live during the policy term (although cover may be restricted or removed in the last few years of some policies). Insurers provide this because where a policy holder is terminally ill with a short life expectancy, then working is generally a challenge. Essentially an insurer is offering to pay the benefit while the policy holder is alive (i.e. bring the claim date forward) rather than being callous enough to wait until they have passed before making payment.
The content of this article is for generic guidance only and to discuss specific requirements you should speak a qualified protection adviser. You can contact
Craig Power – craig.power@villagefs.co.uk
Or Luke Spires – luke.spires@villagefs.co.uk
Or contact us online
Or call 0118 9410026 or contact us through Facebook https://www.facebook.com/villagefsreading/
The information contained within was correct at the time of publication but is subject to change.
01.11.2024
