Life Cover Listings

Some unit-linked plans have, however, introduced guarantees. Normally these involve a special fund which allows the company to guarantee a value at retirement age and hence an actual pension. Such guarantees are no different from the non­profit ones discussed earlier, and may be useful at ages close to retirement.

The unit-linked plans involve charges expressed slightly differently from unit-linked life insurance policies. The initial charge on units is normally 5% but may be higher, and the annual charge is between 1.5 % and 1 %. Many plans, however, also involve the allocation of capital units in the first one, two or three years, embodying an extra management charge of 3% or more.

As previously mentioned, this is not a once-for-all charge; it is an annual charge and means that 3% (or whatever) of the value of the relevant units will be deducted by the company each year the plan is in force. This can add up to a substantial amount over a long-term pension plan. The reason capital units are used is that under a personal pension plan the company is unable to make deductions from the fund if the plan is stopped by the plan holder (in the case of the life insurance contract it can do so via the surrender value). So to take account of “lapses” the company has to build into its charges an element that will recoup its costs. Nevertheless, some companies do not use capital units on personal pension plans, and their plans can often offer better value (capital units are not allocated when unit-linked funds are used on a single-premium basis).

At maturity, the unit-linked plan holder has the option of converting all his units into an annuity, in which case he gets a fixed level income for life (though he may also, if he takes a slightly lower annuity, have a guarantee that it will be payable for a minimum of 5 or 10 years whether he lives or not) or of keeping the units and drawing off an annual pension by selling some each year.

Generally, unit-linked policies are aimed at producing investment gains and are designed for the investor who wants to accumulate capital over a period of several years. The level of life insurance cover per £ of premium is so much lower than that on term assurance that unit-linked policies are not suitable for providing family protection. Salesmen sometimes present packages con­sisting of a unit-linked policy and term assurance, which they try to sell on the basis of security and investment. Such packages should be examined carefully, both from the point of view of how the benefits compare with your needs and from the cost angle.

The investment attractions of the unit-linked life insurance policy can easily be demonstrated. Imagine you agree to pay a £l0 - a ­month premium on a unit-linked policy. The life insurance company may deduct £1 to provide life insurance cover to meet its expenses. The other £9 is invested in units. The price of these units embodies a further charge because there is a disparity of about 5% between the offer price and the bid price (the price at which the company will buy back the units when the policy matures). So the amount actually invested in the fund on your behalf would be £8.55. You can get tax relief on each premium at 17.5%, so that the net cost of each £10 premium is only £8.25. Your £10 a month is therefore buying you more investments than your net monthly outlay.

Most life insurance policies incorporate a more complicated charges structure. However charges are levied, the final value of the life insurance policy at maturity is determined by the growth in the value of the units. This depends partly on the skill of the investment managers but is determined to a larger extent by trends in the economy and the financial markets. Estimates of growth in unit value are always used in estimating maturity values for unit-linked insurance; it is important to remember that, just as reversionary bonus rates are never guaranteed, so neither are estimated growth rates.

The actual operation of a modern life insurance company is extremely complex, involving all the aids of modern technology and especially, of course, the computer. But the essential principle is simple. Let us assume that we were planning a scheme whereby 1,000 men all aged 45 would agree to pay into a common fund each year of their lives enough to pay out £1,000 to the dependants of any of them who died during any year. It is possible to determine fairly precisely just how many of the 1,000 will die in any year. To provide the £4,000 necessary to meet the claims of the dependants that are each of the original 1,000 would have to pay £4.

But if we continue in this way, deriving the premium from the year’s actual mortality each of them will have to pay in over £21 to meet the outgoings, since their income would quite probably be falling just as the contributions rose, such a scheme would be extremely unattractive.

What the founders of life insurance discovered, however, was that with a lot of mathematical calculation and a little guesswork, they could work out a premium rate which each of the 1,000 would agree to pay throughout their lives in return for the guarantee that all claims would be met when they fall due. The annual premium is far higher than the payments required in the early years of the “pay-as-you-go” scheme, because a reserve is being accumulated in the early years which will cover the excess of claims over premiums in the later ones. The fund is investing the surplus of the early years at interest to build up reserves which will meet future claims.

To devise such a system requires two principle calculations:

•1.      The mortality rate

The mortality rate determines how much it is likely to be required each year to meet claims.

•2.      The interest rate

The interest rate is needed to work out how much the premium can be reduced to allow for the effect of accumulation or reserves ands interest.

There is a confusing array of life insurance products, almost rivaling the mutual fund industry and its bewildering variety of choices. With over 1,500 life insurance companies active in the business and with each company usually offering several different types of policies, you can see that there are many thousands of different life insurance contracts available.

No guide, advisor or reference can feasible cover every type of policy and every nuance. Yet there are major similarities between certain types of life insurance contracts. For example, a universal life insurance policy issued by a company A will be similar to a universal life policy issued by company B. State Insurance Regulations make this so.

All life insurance policies promise to pay an agreed sum of money if the insured person should die while the policy is active, but all life insurance policies are not similar. A wide variety of plans are available. Some policies provide permanent coverage. On the other hand, others offer temporary cover such as term life insurance. Some life insurance policies like permanent life insurance help to construct cash values. Some policies combine different kinds of insurance (e.g, a permanent base policy with a term rider), and yet others let you change from one type of insurance coverage to another. The choice that you make should be relative to your needs and also according to your budget. A number of permanent life insurance plans permit you to put in extra, term life insurance all the way through the phase of your greatest life insurance need. Typically, the term life insurance concerns your life but it can as well be purchased for members of your family such as your spouse or children.

As such, when you step into the insurance market looking for a life insurance plan, you should take care to make the agreement with reputed companies. Such companies can provide you with extra services like guiding you towards buying a life insurance policy that will nicely fit into your budget. Purchase life insurance to get benefits on time.

Endowment life insurance policies generally come in more than one form, with profit and without profit. The insurance policy usually has a maturity date when a lump sum of money is paid to the policy holder unless the later has died before that maturity date.

There exist a number of terms for a life endowment insurance policy. You can have a policy over ten, twenty or twenty five years depending on which insurance company or broker you are using. Obviously, the shorter the term the more expensive your life policy premiums are likely to be. Furthermore the premium amounts that are payable monthly are unlikely to change much over the term of the life insurance policy.

More than like the premiums you pay per month will be invested by the insurance company to yield sufficient returns so that the policy can pay you a ‘profit’ at the end of the term or at maturity. Non profit endowment life policies are rarely used nowadays as the insurer would expect a return on investment. After all, why would someone invest in a no profit endowment when there are probably alternative investment opportunities that pay interesting dividends and interest?

The with-profit life policy is therefore intended to give a return on the monthly investment. It is therefore similar to a savings account except in this case the policy will pay the full sum insured if you die before the term of the policy, even if you have not put in the actual amount of the sum assured.

It is clear why some people would prefer an endowment policy. Everybody wants to save and put some money aside but with the cost of living increasing all the time, it is sometimes difficult to find chunks of money to put aside. Paying a monthly affordable premium, getting a life insurance cover and being able to get a profit at the end of the policy sounds like a no brainer, win-win situation.

Life insurance is available with a number of additonal options.  One of the options is TPD this stands for Total and Permanent Disability. For an additional charge on the majority of contracts this will enable the policy holder to have their policy paid is the life assured is unable to do their own occupation.

This can be quite an expensive option to add onto your policy and can be difficult to underwrite due to some occupations being classified as more dangerous than others .

TPD is often put into different definitions own occupation where the company will pay if you cant carry out your own occupation this is seen as the best. Work tasks this is where the claim is categorised if you can carry out a number of tasks these could be things like lifting, walking, hearing, using a pen or pencil or vision. The final version is classified as life tasks and this would pay if you struggled washing, dressing feeding or with continence or mobility.

It is very important for possible customers to consider the following information prior to making an application for Life insurance or indeed most other types of insurance policies. Most contracts have no cash in value at any time especially term insurance, there are some policies that do but they tend to be the whole of life contracts. Most whole of life contracts have periodic reviews and it is important for potential customers to understand the basis on which the review will be conducted.

Most term insurance policies have reviews every five years but it is important to check first as not all companies will be exactly the same. If in the event if making a claim the Insurance company may request you provide information and could invalidate your policy if you refuse to do so. Their may be exclusions to your policy therefore it is important you read the key features that should be provided prior to your acceptance as not all insurance companies have the same contracts. Potential customers should check to see if the premiums are guaranteed or reviewable prior to making any decision and if they consider a reviewable premium be fully aware of the review procedure. If you decide to cancel your policy after a review or indeed at any time most policies will have no surrender value.

If you take a reviewable policy you should consider if you receive any negative review and decide to change to another provider because you are older it is unlikely to be cheaper as the age at policy inception can make a substantial difference to your premiums.