Buying a life insurance policy is important since it provides you and your family with security. It is possible to take out a policy which will provide either a regular income or lump sum to cover a wide range of possibilities such as; death, serious illness, incapacity or unemployment.
There are many different types of policies available and here we outline a few of the most popular options.
We have local offices in Edinburgh, Falkirk, Glasgow, Livingston and Stirling and provide Financial Advice on Life Cover throughout Scotland. If you would like to speak to an Independent Financial Adviser (IFA) then book your free initial consultation.
Term Insurance
Term insurance provides protection for a specific period. For example, if you took out a 25-year mortgage it would make sense to take out a 25-year term insurance policy to run alongside it. If you die within the term of the policy, the plan pays out the amount selected at outset. These policies have no cash in value should you decide to cancel the plan.
Whole of Life
A whole of life plan, as the name would suggest, covers you for your entire life. If you maintain payments, the plan is guaranteed to pay a lump sum upon your death. These plans tend to be more expensive than term insurance policies because the insurer knows you will die at some point and therefore they will need to pay out.
Income Protection
Income protection is designed to provide a monthly income if you are unable to work due to sickness or injury. Many employers will provide sick pay but only for a relatively short period of time, income protection will pay a predetermined amount of income until you can go back to work or the end of the policy term. This gives peace of mind that should the worst happen, you will still be able to pay the bills.
Critical Illness Cover
Critical illness cover is a plan designed to pay a lump sum should you be diagnosed with one of the conditions covered by the plan. This payment can be used as you wish but is commonly used to help with the bills or to make any necessary alterations to the house e.g. wheelchair access. Policies differ in the conditions covered so you should always check the small print before signing up, but commonly will cover; heart attack, certain types of cancer, MS and stroke.
Inheritance Tax
When setting up any life insurance policy it is vital to consider putting the plan into trust. The standard inheritance tax rate is currently 40%, paid on the value of any estate above £325,000; in addition, homeowners benefit from an extra £175,000 allowance if they pass on their primary residence to a child or grandchild.
Setting up a life policy in trust means that the proceeds are not part of your estate and therefore are exempt from inheritance tax. Also, having the plan in trust allows for a quicker pay-out on death. A financial adviser will be able to assess your circumstances and ensure the correct type of trust is in place.
The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.