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Product Type

This is one of the most common types of life assurance plans. It is designed to pay a pre-determined tax free lump in the event of the life assured's death, if it occurs within the specified term of the plan. As there is no investment element, all of the premium can be used to provide the lump sum benefit required allowing high levels of cover to be achieved from relatively low premiums.

These plans are available as pure life assurance plans, critical illness only cover plans or a combination plan that would become payable on death of the life assured or on the diagnosis of a critical illness.

For critical illness plans, the cost of including a life assurance benefit is often minimal and in some cases, it can be cheaper to buy a 'death or earlier critical illness plan' as opposed to a critical illness only plan.

These plans are designed to protect a normal repayment mortgage. The level of cover is set to match the original mortgage loan, and reduces over the years as you pay off your mortgage.

Sometimes known as a decreasing term assurance policy, the premium you pay stays the same whilst the benefit payable in the event of a valid claim decreases at a similar rate to the capital amount outstanding on your mortgage.

They usually aim to pay off your outstanding mortgage debt, assuming the mortgage interest rate payable does not exceed a certain rate.

Rather than providing a lump sum, Family Income Benefit plans provide an income, often as a regular, tax free, monthly amount.

However, you should be aware that payments are only made from the time of the claim to the end of the plan. For example: If the original term of the plan was 20 years and a claim on death was made in year 17, only 3 years of payments would be made.

In comparison, if you were to put in place a level term assurance plan as discussed above, the full sum assured would still be payable, even in year 19.

Family Income Benefit is beneficial to those who would prefer to receive a regular tax free income rather than have to worry about investing a large lump sum. As the total amount payable over the term of the plan decreases month by month, Family Income Benefit can often be slightly cheaper than level term assurance.

For all the plans mentioned above, waiver of premium benefit can be added so that if you were unable to pay your premiums due to an accident or long-term illness, the company in effect waives premiums after a specific period. This is an option that you can choose to include when obtaining initial quotes for the plan that you require.

Benefit Type

Death Benefit Only - This type of plan pays out only on death. Some plans will pay out benefits on diagnosis of a terminal illness.

Critical Illness Only - This type of plan only pays out when one of the policy specific range of critical illness conditions has been professionally diagnosed. Some plans will pay out benefits should you become totally and permanently disabled.

Death or Earlier Critical Illness - This type of plan pays out on a first event basis, i.e. Benefits are paid when either one of the policy specific of critical illness conditions has been professionally diagnosed or on death, whichever occurs first. Some plans will pay out benefits should you become totally and permanently disabled or on diagnosis of a terminal illness.

Occupation

Enter the occupation (or part of it), after completing the rest of this page, press next. On the next page one or more potential matches will be displayed - select the appropriate one from the list. If there are a lot of matches, you will see “please select”, and you will need to press the down arrow for the list to be shown.

If no suitable match can be found, select unknown occupation and the quote will be requested based on a non-hazardous occupation.

Increasing Benefit

With many plans, at outset, you can opt for the cover provided by the plan to increase each year, often by inflation. This facility is designed to help to maintain the buying power of the amount payable in real money terms in comparison to when the plan was originally set up.

If you choose not to include an inflation proofing option on outset, it is important that the level of cover provided by this type of plan is reviewed on a regular basis in order to ensure that the benefit payable maintains its purchasing power.

Waiver of premium (or premium protection)

If available, it is generally a very good idea to include waiver of premium within your policy conditions. This is because, whilst not always the case, with many protection policies, if you miss a premium payment you could lose the cover.

Whilst this may increase your premium slightly, it will help to ensure that in the event of you becoming disabled or unable to work due to an accident or long term illness you won't necessarily need to meet your monthly payments to keep the plan in force.

There is usually a waiting period before a claim can be made, referred to as the 'deferred period', which is often about six months.

The underwriting (the decision on how much to charge you for including waiver of premium) is usually stricter than life cover and they are likely to investigate your occupation as well as your health. Even so, any additional is usually relatively small.

Smoker

A smoker is defined as someone who has used tobacco products within the last 12 months.

This includes cigarettes, cigars and pipes, or nicotine replacements. A simple medical test may be required to check validity.

Deferment Period

When you take out an income protection plan you choose the length of time you will wait between becoming ill and benefits starting to pay, with a minimum normally of 1 month.

The waiting period (known as the deferred period) for most plans is normally set up at either 4, 13, 26 or 52 weeks and is chosen at application stage by the person who is setting up the plan. In effect the shorter the deferred period, the more expensive the plan is likely to be.

Reviewable rates

Guaranteed means that the premiums you pay are guaranteed to remain the same for the duration of the plan and will not be increased by the provider at some point in the future.

Guaranteed premiums will normally work out as a better option with the least risk to your budget over the longer term but if you are on a tight budget right now and don't mind taking a risk that the premiums could go up significantly in the future, reviewable premiums give you an alternative option to get higher cover at a potentially lower cost in the short term.

Normally, by opting for reviewable premiums on plans you will pay slightly less at outset than you would expect to pay for guaranteed premiums. However, by opting for this choice you are also agreeing that the life assurance company you use to provide you with the life assurance you need can review your policy premiums at a later date.

Reviews are often set up either annually, every 5 years or after the first 10 years and then every 5th anniversary after that. Over time reviewable premiums could increase to the point that you are paying considerably more than you would have been had you started with guaranteed premiums in the first place. Therefore there is a risk that if you opt for reviewable premiums to save money in the short term over the longer term you could end up paying significantly more or they could even become unaffordable.

Gross Annual income

The amount of benefit you can be covered for by an income protection plan is normally determined by your gross annual income. Normally up to 65% of your current earnings can be replaced by an income protection policy, although any income from state benefits, pensions or other sources will often be taken into account when benefit levels are calculated.

Cover can also be obtained if you are not working, and the amount available will vary from company to company.