Life cover insurance

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Life cover insurance can ensure that, if you died, your family would be financially secure, your mortgage paid off and your funeral covered.

It’s the ideal. To pay off your debts and still have something in the coffers for a good ‘wake’ and a wee share out.

There are three main types of life cover that might work for you:

Term Assurance – you pay a premium over a certain term in return for a lump sum payment on death. Most companies now offer terminal illness cover, so that if you have a terminal illness and are unlikely to survive more than 12 months, they will pay the sum assured immediately. This cover can be set up in single or joint names and will pay out only once. The cover can be set up as level, increasing or decreasing cover.

Family Income Benefit – instead of receiving a large lump sum on death, say £200,000, you agree an annual income that would be paid on your death each year until the end of the plan. For example, if you die with three years left on a £20,000 a year plan your beneficiaries will receive £20,000 for three more years. This can be a cheaper way of protecting your family, and is often most suitable for younger people.

Whole of life cover insurance – this does what it says on the tin. It will pay out a lump sum on death, regardless of what age you are, provided you have paid the premium up until that point. This can be used a good way to ensure that there is sufficient provision for your funeral. This can be set up in joint names and paid on the second death, so can also be a good way of covering the cost of any inheritance tax bill that the surviving partner may be liable for.

Note: two single life cover plans and one joint cover plan often cost roughly the same but with two plans you have two possible pay-outs, where you will only have one pay-out for a joint policy. If you have two plans and were to separate, you will each still have cover in place. If you have a joint plan you may need to re-apply separately for new cover, which is likely to be more expensive as you are older and and this may be after a change in your medical circumstances making cover difficult to obtain at all.)

Point to note: if you currently have life cover and it is not written in trust then on death it will form part of your estate and could be subject to inheritance tax and take longer to be paid to your estate. Seek advice to put your plan in trust and avoid unnecessary delays, expense and loss of wealth on death.

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