What is Life Assurance?
A policy that pays out a lump sum or a monthly income to dependants in the event of your death, or in some cases upon diagnosis of a terminal or critical or serious illness.
Why do you need it?
The loss of a spouse or parent can leave dependants with additional issues to cope with other than the emotional. If you are inadequately insured, your dependants may be left with a dramatically reduced household income, which could affect their quality of life. Potentially there may be reduced opportunities for children such as the ability to pay for a university education or difficulties in maintaining mortgage payments on a reduced income.
In the event of your death, a lending institution will not write off your debt. Rather, they will continue to pursue the debt through your dependants and could, ultimately, foreclose on the loan meaning the loss of the family home.
What will the state provide?
The main benefits the State may provide are the Widowed Parent’s Allowance and Child Benefit. Depending on whether the widow(er) qualifies for Income Support, the State may or may not help with paying the mortgage interest.
The method for calculating which benefits an individual may qualify for is extremely complicated. More information is available at the Department of Work and Pensions website.
What types of cover are there?
Level Term Assurance – this policy pays out a set amount of money in the event of a successful claim. These are good for personal or family protection or to protect interest only mortgages or a debt that is not reducing
Decreasing Term Assurance – this pays out a lump sum that decreases annually as the policy term progresses. This is ideal for covering a mortgage that is on a repayment basis.
Family Income Benefit – this pays an income to those left behind that can be received monthly or annually, to replace the income that has been lost.
What is terminal illness?
Terminal Illness Insurance pays out a capital sum if the policyholder is diagnosed with a terminal illness from which the policyholder is expected to die within 12 months of diagnosis, by a physician who specialises in that illness or condition.
Terminal Illness Insurance is a form of insurance that is often added to a life insurance policy or a Mortgage Life Insurance policy by the insurance company issuing the policy. Terminal Illness Insurance is not available as a separate insurance policy.
If a life insurance policyholder also has terminal illness insurance, then he/she has the benefit of knowing that if he/she is diagnosed with a terminal illness and is expected to die within 12 months of diagnosis, then the combined policy will pay out straight away rather than waiting for the policyholder to die
Please do not confuse terminal illness insurance with critical illness or serious illness insurance. The insurance policies are very different.