Protection is often needed to ensure your family will remain financially secure if you were suddenly unable to provide for them – for example, if you became ill or died. Protection can also be used to pay a future Inheritance Tax bill.
Level term and decreasing term life insurance policies both continue to provide protection for a predetermined length of time, and will pay out a lump sum if you die within this period. However, level term policies specify a lump sum that can stay the same throughout the life of the policy, whereas decreasing term policies offer a lump sum that automatically reduces over time.
Whole-of-life policies are a type of life insurance that last for the rest of your life, rather than for a predetermined number of years. They are often used to cover a future Inheritance Tax bill. Premiums can be guaranteed (the future cost is known) or reviewable (the future cost is unknown).
Family income benefit policies pay money to your beneficiaries upon your death or if you are diagnosed and survive a specified critical illness. However, unlike other life or critical illness insurance policies they pay out a regular tax-free income until the plan’s end date, rather than a one-off lump sum. You can choose how long the policy payments will last – for example, until your youngest child turns 18.
This type of insurance pays out a tax-free monthly income, based on a percentage of your earnings, if you become unable to continue your normal occupation due to a health condition or injury. After a pre-agreed waiting period, you can claim a percentage of your earnings until you return to work, the policy ceases or you die.
Critical illness cover or serious illness cover pays a tax-free lump sum if you are diagnosed and continue living with a defined illness, or have to undergo certain surgical procedures. The list of conditions includes heart attacks, strokes, brain tumours, a range of cancers and degenerative diseases such as Parkinson’s. Critical illness benefits for children are automatically included with most providers.
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