Life Assurance

Family Income Benefit
Mortgage Protection
Level Term Assurance
Convertible term Assurance
Renewable Term Assurance
Endowments
Whole of Life Policies

Family Income Benefit

This is a life assurance contract which does not pay a lump sum during the term, but, in the event of death, pays a regular sum after death. The regular payment is usually made from the date of death until expiry of the policy term. The contract does not contain any investment element.

Mortgage Protection

Mortgage protection is a type of term assurance policy used in connection with repayment mortgages. The initial amount of life cover reduces each year, closely matching the outstanding capital debt on your mortgage.

Level Term Assurance

This type of plan pays a lump sum in the event of death during the term of the policy. The contract contains no investment element. If you were to fall ill after the policy has expired, you could have difficulty replacing the cover.

Convertible Term Assurance

This contract is similar to a level term assurance policy with one distinct difference. The policy may be converted into an endowment or whole-of-life plan, regardless of state of health. Clearly, this is a valuable facility. Higher premiums are usually paid for this type of life assurance compared with level term assurance.

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Renewable Term Assurance

A level/convertible term assurance policy will expire at the end of its term at which point, due to age or new medical conditions, premiums payable for further cover maybe more expensive. To provide some protection against this eventuality, a renewable term assurance policy allows the original policy to be replaced with a new plan at the end of its term, regardless of state of health.

The Financial Services Authority does not regulate some forms of Life Assurance, although it does regulate the financial soundness of insurance companies.

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Endowments

A low cost endowment is a combination of an endowment assurance policy and a decreasing term assurance policy. These policies are typically used to fund a mortgage repayment.

The endowment policy is structured so that if bonus rates continue within the levels quoted, the maturity proceeds should be sufficient to repay the whole of a loan (usually a mortgage), although this is not guaranteed.

On death during the term the sum assured will be paid by the combined value of the endowment and the decreasing term assurance.

A traditional with-profits endowment policy will add bonuses to a 'basic sum assured'. This is the absolute minimum that could be returned at maturity if premiums are maintained. This is not to be confused with the level of death benefit, which will be higher, owing to the additional benefit under the decreasing term assurance policy. The return on this investment depends on the profits made by the life office and on its policy as to their distribution (whether on early encashment or in adverse market conditions or other circumstances) and cannot be guaranteed.

Where unitised with-profit policies are concerned, bonuses will be added either by increases to the unit price or via the addition of bonus units, where the price stays the same and more units are added to the policy.

A unit linked low cost endowment is a combination of a unit linked savings plan and a decreasing term assurance.

The endowment policy is structured so that if the fund achieves the required annual growth rate, then the maturity proceeds of the policy should be sufficient to repay the whole of the loan. Although the death benefit will be designed to always be sufficient to repay the loan, should the fund grow below the quoted rate then the maturity proceeds will be insufficient to repay the loan.

If the underlying assets of the policy perform well and over the term of the policy, growth rates exceed the 'required annual growth rate', the policy may produce a surplus which is payable to the policyholder. The required growth rate on which the sum assured is worked out is based on assumptions quoted in the product literature.

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Whole of Life Policies

Whole of life assurance, as the name suggests, can provide life cover without imposing a limited term. As with endowment policies, they may be with-profits, unit linked or on a low cost basis.

There is a choice between the maximum and minimum levels of cover available at given levels of premium. Standard cover basically allows the same level of life cover to be kept up throughout life, as long as the fund achieves a specified minimum annual growth rate. If this rate is not achieved, you will either need to increase the premium to maintain cover, or to decrease the level of cover to a sustainable level. Whatever level of initial cover is chosen, that amount is guaranteed to be maintained for a specified term (normally 10 years).

Both endowments and whole-of-life policies are equity-based arrangements intended for medium to long-term investment. This means the value of the policy can be reduced due to stock market movements, although it can also rise. This means you may not get back all the money you invested.

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