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Types of Cover

The term 'life insurance' is used to describe a number of different types of cover, each with its own features and benefits. Although they work in different ways, they all have similar aims – to offer you and your family financial peace of mind and to help you protect your future.

Level Term Life Assurance (LTA)

A Level Term Assurance policy pays out a sum of money in the event of your death during the term of the policy. It’s called a ‘level’ term assurance because the amount of cover (also known as the 'sum assured') stays the same throughout the length of the policy. The sum assured and the term are set at the start of the policy.
The cash lump sum is paid tax free and can be used by your dependants however they choose. Level Term assurance is often taken out to help pay off a mortgage and is most suited to interest only mortgages, where the amount owed does not decrease over time.

Decreasing Term Life Assurance (DTA)

Decreasing Term Assurance also pays out a cash lump sum in the event of your death, however the amount paid out decreases over time. These policies are usually taken alongside a repayment mortgage so that the amount paid out is the same as the amount left on the mortgage. As the amount of cover decreases over time, the premiums for decreasing cover are typically slightly cheaper compared to level cover.

Family Income Benefit (FIB)

Family Income Benefit is designed to pay out an amount of cover in the event of death, but instead of providing a one-off cash lump sum, it pays a regular, tax-free income until the end of the policy term. This can be a suitable option for people who would rather that their dependants receive a regular income, rather than have to decide what to do with a one-off lump sum.
The term of the policy can be chosen to fit your family’s circumstances; for example to take your youngest child to age 18 or 21 and the amount of cover you chose can be linked to inflation to ensure that, in the event of a claim, the benefit keeps its real value and spending power.

Critical Illness (CI)

A critical illness policy is designed to pay out a tax-free lump sum if you are diagnosed with a serious illness like cancer, heart attack or stroke (and many other illnesses depending on the policy). The money is paid once the diagnosis is confirmed and you can use it however you wish – whether that’s to pay off your mortgage, pay for medical treatment or drugs or even take a holiday.
Because Critical Illness cover is designed to cover a specific list of illnesses and events, the quality of the policy you take out is key. Whilst some policies are cheaper than others, they may not cover you for certain illnesses that other, more comprehensive policies do.

Income Protection (PHI)

An Income Protection policy pays out a monthly income to replace a proportion of your salary in the event that you are unable to work as a result of an accident or sickness. It will pay out after a set amount of time has passed (decided by you at the start of the policy) and will continue to pay until you are either well enough to return to work, you reach retirement age or the end of the policy term.

These policies can be taken in two forms; all three elements covered (accident, sickness and redundancy) or you could choose to protect just in the event of accident or sickness.
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