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Introduction
Life insurance* was originally exclusively
death insurance. It is still primarily taken out to
provide benefit on death but in recent decades life
companies have introduced choice in both the length of
term of policies, the mix of protection with a saving
element (a unit linked policy) and the type of protection
provided. A policy may also have a critical illness
option which provides for payout other than in a death
situation.
(*we use
the common usage term insurance rather than assurance
throughout)
Mortgage
Protection is one of the most common forms of
life insurance today as lenders require cover as a
condition of mortgage advances. The objective of a policy
is to repay the outstanding balance of your mortgage
should you die or become seriously ill.The lump sum death
benefit decreases over time as the mortgage principal is reduced.
If
you are dealing directly with a mortgage lender, you will
invariably be offered its own product. However, the
Consumer Credit Act gives you the freedom to shop around.
Critical
Illness protection has also become a popular insurance
for individuals who would suffer serious financial
hardship if they were unable to work for extended
periods.
How
much cover do you need?
A simple
measure is the required lump sum to pay off a mortgage
coupled with the number of year’s worth of your
annual income your dependents will need to keep them
financially comfortable, for as long as necessary.
The
simplest way is to multiply your income by the total
number of years you think your family will need support.
The basic rule about buying life insurance
is to go for the cheapest deal.
Tax
Relief On Life Cover for Self-Employed
The
Finance Act 2001 provides that self-employed persons can
claim total life and pensions cover relief up to the
limits of 15-30% of net relevant earnings as per the
chart:
| Age
|
%
of Earnings* |
| Under 30 |
15 |
| 30-39 |
20 |
| 40-49 |
25 |
| 50
and over |
30 |
| *
ie earnings from self-employment or
non-pensionable employment after deducting any
losses or capital allowance |
The life cover/pension contribution
breakdown, subject to the limits, is up to the
individual.
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