WHAT IS LIFE ASSURANCE?
Life assurance, commonly referred to as a ‘whole of life policy’ is an indefinite form of insurance that pays out upon the death of the policyholder. This is, of course, on the condition that they have met their payments. Payments are made on a monthly or yearly basis and in some cases, they can even be submitted as a one-time payment, depending on what agreement you have made with your provider. Factors on the sum payable usually fall along the lines of typical insurance cover, such as age, gender and location.
Who can take out a life assurance policy?
Life assurance is typically suited to those over the age of 50 (as it covers funeral costs) although, the younger the policyholder, the cheaper the premium is. Life assurance policy is not dependent on medical information either – in fact, in many cases, submitting medical information is not even a requirement to gain a policy. Of course, you can get a policy at any age, and in many circumstances, life assurance may be better for you than life insurance.
IS LIFE ASSURANCE A TAXABLE BENEFIT?
Although coming with some tax benefits, life assurance policies are always a personal choice and are therefore not tax deductible. This is quite a common misconception and should be considered if this is part of your reasoning for wanting whole of life cover. Life assurance does, however, come with some tax-related benefits in the short, medium and long term.
Life Assurance & Inheritance Tax
Although free from Capital Gains Tax and Income Tax, your beneficiaries may have to pay inheritance tax on the lump sum (if over £325,000) in the event of your death. Life assurance is very commonly used in relation to Inheritance tax planning; you can avoid your beneficiaries paying the inheritance tax bill by placing the assured sum into a trust. If you feel this is something you would be interested in, speaking to a financial adviser will give you the clarity you need in deciding.
HOW DOES LIFE ASSURANCE WORK UK?
It is always worth remembering that, as previously stated, any form of life cover is one of the most personal decisions a person can make and will have an impact on the future of those closest to you. Essentially, only you can pick a policy that is best for you and your family. There isn’t a right or wrong answer, but some options may be more appealing or beneficial than others. For this reason, it is always worth weighing up exactly how a life assurance policy would work for you.
A Future Investment
Life assurance can work for you in the way you want it to. A lot of policies are investment-linked, meaning you can ensure an increase on your eventual lump-sum payout. Policies typically have review dates, so if the amount you’re paying in isn’t working for you or if you’re considering the option of paying in a higher sum, you will be given chances to rectify this.
Nobody wants to talk about death, but the fact that life assurance covers funeral costs will come as a huge benefit for those that are slightly later in life. Also, consider that medical information isn’t always required to obtain some policies, others allow for investment to increase the lump-sum pay-out and none of them have an age limit. You’re looking at a relatively easy-to-obtain policy, with a potentially increasing and guaranteed pay-out at the end of it.
Although a guaranteed payout sounds great in theory, this does come with caveats. For example, premiums tend to be higher than your standard life insurance policy as the provider is expecting to make a payout at some point. Additionally, if you were to live long enough to cover all payments, you could potentially be paying more than the policy is even worth. Life assurance policies are also very inflexible, typically available at a level or increasing term; meaning you may miss out on specific payments, such as covering your dependents. It is worth considering – if you are a healthy, young person with a mortgage or young children – whether life insurance may be a better option.
THE DIFFERENCE BETWEEN LIFE ASSURANCE & LIFE INSURANCE
Life Assurance Policies
Life insurance, unlike its alternative, is valid until its expiry date. Because of this, premiums tend to be relatively lower than life assurance, as a payout isn’t guaranteed. Typically, this expiry date is the event of your 75th birthday – with many providers being unwilling to cover once you reach that age. Of course, your medical history plays a part in your life insurance cover; far more so than it would with a whole of life policy and this should always be taken into account. A conditional pay-out with monthly contributions may not prove to be constructive for over-50’s in good physical health.
Life Insurance Policies
That being said, the flexibility of life insurance cover means that the payout can be tailored to cover specific payments. Your mortgage, dependents and debts can be covered by the life insurance payout in a way that your life assurance policy cannot – as a younger person, this might be something to consider if you are a new home-owner or have a young family. Monthly premiums on life insurance tend to be reasonably cheaper than whole of life policies also, which is definitely an important factor if you’re on the younger side with bills to pay.
Life Assurance Vs Life Insurance
Here is a more comprehensive table to outline some of the key differences between the two:
|LIFE ASSURANCE POLICY
|LIFE INSURANCE POLICY
|ASSURED PAYMENT Life assurance means that a pay-out is guaranteed upon the event of your death
|PAY-OUT WITHIN POLICY Pay-out is only available if your death falls within the length of the policy
|HIGHER PREMIUM COSTS Due to the ‘indefinite’ nature of life assurance policies, premiums tend to be more expensive
|LOWER PREMIUM COSTS Monthly premiums tend to be a lot cheaper, due to the fixed term of the policy
|INVESTMENT Some policies give their holders the chance to invest further into their premium, increasing the final pay-out
|FIXED FIGURE The final pay-out is typically agreed upon obtaining the policy and usually stays at that figure
|NOT AGE OR HEALTH DEPENDENT There are no age limits on who can get a life assurance policy, whilst many policies don’t require medical information
|CONDITIONAL FACTORS Age, gender, health and even location can play a part in the acceptance of a policy
|LESS FLEXIBILITY Covers funeral costs but otherwise stays at level or increasing term
|MORE FLEXIBILITY Can be tailored to cover your mortgage and direct dependents
IS LIFE INSURANCE COVER WORTH IT?
It might seem morbid to think about this kind of cover but leaving it too late could be detrimental to your loved ones. Life insurance is a financial safety net that will cover your loose ends and protect your family in the event of your death. If you were to pass away earlier than expected, everything will be taken care of from a financial perspective.
Life assurance is more investment-based, guaranteeing a payout for your family when you die, no matter how long you live for. Once again, this is a very personal decision but seeking out the correct financial advice will help you make the right one for yourself and your family.
Speak to our financial advisors or fill in the form below to discuss how a life assurance policy can benefit you and your family today.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.