What is life insurance?

Life Insurance - Investment

From very early days in their history, life companies have offered policies which are in effect a means of saving. These policies were made more attractive by tax relief on premiums, and the fact that for many, the life company acted as a tax haven in that the rates of tax payable by the life fund were lower than those levied on the policyholder. While such tax incentives are a thing of the past, life assurance policies retain some attractions.

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Examples of Life Assurance Investment Contracts

Endowment Policies - Are designed to pay out a cash sum on a specified date or on prior death. Level premiums are paid throughout and the final maturity value will depend on the performance of the underlying Private Jet Charter unit linked or with profit funds. Policyholders may decide to stop payments prior to the maturity value and cash in the policy for a reduced sum, the policy may be sold or the policy can remain in force and pay out a reduced sum on maturity.

Provided the policy was originally for a term of ten years or more and premiums have been paid for more than 7.5 years, then the proceeds of the policy are tax free in the hands of the policyholder. Policies taken out before March 13th 1984 still qualify for tax relief on the premiums.

The endowment has been used to provide a capital repayment for interest only mortgages, though this is less fashionable now than used to be the case because of the greater tax benefits of using PEPs and now ISAs or pensions as repayment vehicles. The advantage of the endowment lies in the ability of the life office to include such options as Low Start, critical illness and waiver of premium resulting in greater protection and flexibility.

Projected maturity values given by the life office before an endowment is gulfstream business jet Air Charter taken off are estimates, based on a range of possible returns. There has been some concern that because of lower inflation and interest rates, the projected returns may not be achieved. Investors should be aware of the danger that the amount required to meet a repayment may not be sufficient.

The endowment policy is used for a number of different purposes and may go under different names as life offices package the policy to meet certain needs. For example the endowment policy becomes a School Fees Plan, providing capital sums for the payment of school fees.

Whole Of Life Policies - Are basically a very simple policy which pays out a sum assured whenever the life assured dies.

Because there is the certainty of payment, the policies are more expensive than term assurance where payment is only made if death occurs within a certain timescale.

Whole of life policies may be regular premium or lump sum single premium. They may be non-profit, in which case only the guaranteed sum will be paid on death, with profit where the amount payable is the sum assured plus whatever profits have been allocated to the policy up to the date of death, or unit linked where the amount payable is the sum assured plus any additional value from the investment performance of the units.

With all whole of life policies there are two elements, the cost of the life insurance cover, which is higher in the early years, and the investment element which may be low in the early years but then builds up. Single premium bonds are written in the form of a whole of life policy but usually provide little or no life cover.

Most policies will have options such as critical illness, permanent disability and permanent health cover as extra cost options, making them very flexible.

Whole of Life policies can be very useful in providing a fund to meet Inheritance Tax. The premiums will normally be covered by the annual exemptions, and by writing the policy in trust for the beneficiaries, the proceeds fall outside the taxable estate.

Single Premium Investment Bonds Unit linked single premium investment bonds allow an investor to place monies into a pooled investment, similar to a unit trust, but where the funds are treated and taxed as assets of the life office rather than the individual investor, until the bond is encashed either in part or as a whole. The investment powers of the insurance companies tend to be wider than those of the unit trust managers, allowing a mix of cash, property and equities and fixed interest investments and in some cases offering guarantees and links to 'With Profits' funds.

Within the bond there is no distinction between income and capital. An "income" of up to 5% of the original capital may be withdrawn annually by selling units in the bond, but the inland revenue treats this as a return of the original capital for the first 20 years. On encashment, the gain realised (after adding back any withdrawals) is divided by the number of years that the bond has been held, and if the resulting figure when added to other taxable income in the year of encashment means that the investor is liable to higher rate income tax, then the whole gain is subject to that higher rate tax - basic rate tax having been assumed to have been taken at source. Withdrawals in excess of 5% will be treated as a disposal, and the gain realised may be liable to higher rates of income tax. To help alleviate problems on partial encashments, the bonds are normally issued as 100 separate bonds, so that only part will be subject to tax on partial encashment.

Insurance/Investment Bonds will not be suited to all investors, but can offer advantages for some taxpayers and those seeking a guaranteed or secure return.

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Second Hand Endowment Policies

In the past, if a policyholder needed to encash his or her endowment policy, the only option was to obtain a surrender value from the life office issuing the original. Surrender values, even in the years approaching the policy's maturity are much lower than the actual maturity value. It is now possible to sell the endowment policy to companies specialising in this area and the proceeds can be far higher than on surrender.

--------  Term Insurance Explained in plain English

Term life insurance is the most basic form of life insurance and is the least expensive means of insuring a life. Term insurance covers you for a fixed period and only pays out a single lump sum of money if a person dies during the policy term.  see: Definition of Term Insurance

A number of term insurance policies offer additional options. These include for example critical illness cover (see: Critical illness cover is it worth it - This is Money).

One advantage of adding critical illness cover is that the term insurance plan will pay out on diagnosis of an illness that is life threatening

To obtain some term insurance illustrations which will show what the costs will be to protect yourself then please complete the application form and we will come back to you with some personalised figures or if you have any questions that you would like answered then please feel free to either email or call free on 998 005 5522, we are here to help and look forward to assisting you soon with your insurance

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