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Life Insurance?

Level Term Assurance 

In the event of your passing, or you being diagnosed with a terminal illness, this arrangement of cover will provide your family and beneficiaries with a level lump sum that can generally be taken out to a maximum age of 90. This cover can be used in a multitude of ways and in different planning scenarios – from covering debt to mitigating the potential tax on a gift. The sum assured remains level throughout and the premium is guaranteed, meaning it does not change unless you have opted for increasing cover.

Increasing Cover / Indexed Cover

This is an option that accompanies any Level Term policy, Family Income Benefit, or Whole-of-Life policy. It can be added to or removed from a policy; however, it cannot be included after your policy has commenced. Generally, it is set up as an inflation index tracker and follows the Retail Price Index (RPI). This ensures that your sum assured is not eroded by inflation. However, you can set a fixed percentage, with some insurers also allowing for flexibility on your increasing option, allowing you to skip the increase one year and take the option the following year. 

Decreasing Term Life Assurance 

This policy involves a decreasing lump sum designed for capital repayment mortgages. As you make monthly payments on your mortgage, the policy’s sum assured decreases in line with your decreasing mortgage debt. The premium remains fixed and matches your mortgage’s specifications, aligning with its term. 

While repaying a mortgage is vital, it’s important to consider other financial priorities. Merely covering the mortgage may leave residual financial risks. It’s advisable to consult with an adviser to assess the overall financial impact and explore risk mitigation strategies.

Terminal Illness Benefit 

Unlike a critical illness policy, this benefit is typically a part of life insurance and pays out the death benefit if you’re diagnosed with a terminal illness and have a life expectancy of fewer than 12 months. To qualify, the insurer will require validation through a consultant’s letter and a confirmed diagnosis.

Family Income Benefit

This type of cover is usually taken out to cover loss of income in the event of death. This is a cost-effective way to provide income support to your family in the event of your passing. It pays out a monthly, tax-free income and is generally taken out until your youngest child reaches financial independence. It can be used in a multitude of ways and should always be taken with an indexation option.

Whole of Life

This policy guarantees a lump-sum payout upon death or terminal illness. It’s commonly used for Inheritance Tax mitigation, legacy planning, or covering funeral costs. This policy has no specific term and terminates at your passing.

Premiums can be expensive as it is a lifetime guaranteed policy. Careful financial planning is recommended to ensure you can afford the premiums throughout your life, particularly in retirement. There are differences in terms of premium structure – these policies can be guaranteed or they can be reviewable. These features can help with affordability, but they do require specialist advice, which Henry Dannell can provide.

Relevant Life Cover (RLC)

This type of insurance is particularly beneficial for directors of limited companies. Essentially, it is a death-in-service policy with potential tax benefits. It offers a lump sum payment but has limitations and should only be used in conjunction with the right advice. 

RLC (Relevant Life Cover) can be written on either a level, decreasing, or increasing basis. RLC premiums are tax-deductible as a trading expense, and they do not count as a P11D benefit, thus not affecting the director’s personal tax liability. When RLC is paid through a limited company, there also aren’t any National Insurance implications. The benefit paid under the policy is not registered with HMRC, so it does not impact the pension allowance.