Life Insurance Quote Review Site

There are three basic types of plan available, namely guaranteed plans, with-profit plans and unit-linked contracts. The simplest are the guaranteed plans, which are of several varieties, the most straightforward of which is the deposit administration scheme. Here, each premium is guaranteed to earn interest at a variable rate linked to a key interest rate, the most commonly used being the building societies’ mortgage lending rate. Each contribution will earn interest at this level for the period it is invested.

Plans of this type may hold out the promise of very substantial benefits when interest rates are high; in 1976, with the building societies’ mortgage rate at 12.25%, such plans could have been pro­jected to produce far greater benefits than conventional with-profit ones. This would have been highly misleading, for the rate of interest is guaranteed only to match whatever the lending rate is, and it would be quite unrealistic to assume it would remain so high throughout the whole period of the plan. Whatever the final lump sum accumu­lated by retirement age, it is converted into an income by the purchase of an annuity. The annuity rate at retirement is not guaranteed under these plans and so it is impossible to predict or guarantee the final pension (the closer to retirement you are, of course, the more accurately it can be estimated).

The traditional non-profit pension plan is another guaranteed alternative. Here, on regular premium plans the company guarantees a final level pension in return for a given number of annual contributions. It is therefore guaranteeing both the rate of interest to be earned and the annuity rate at retirement. The drawback is that the estimate of the interest rate is likely to be cautiously low, and likewise with the annuity rate (though many companies do allow their current annuity rate to be used when the pension begins to be drawn). If interest rates rise over the period of the plan, therefore, the policyholder will lose out compared to the deposit administration scheme. If interest rates fall, then the converse is true.

In choosing a unit-linked life insurance cover it is necessary to look at two factors, the type of investment involved and the type of policy. Unit-linked funds invest in different types of assets. Policies may be linked to unit trusts which generally invest only in shares. There are many different unit trusts with different investment objectives. Some generate high yield, others low yield, some invest overseas, some only in the UK, some only in large companies and some only in small.

Policies are also linked to funds of mainly ordinary shares managed directly by the life office. Then there are ‘managed funds’ which divide their investments between properties, shares, fixed-interest securities and cash (a similar profile, in fact, to the conventional life office fund). Policies may also be linked to ‘property funds’ investing in commercial and industrial properties or to fixed-interest or gilt-edged funds investing either in a broad range of fixed-interest securities or in the narrower and most secure portion of that range represented by stocks issued by the Government.

As a general rule, the more restricted the scope of the investment fund concerning life insurance cover, the more risky it is likely to be. For example, a life insurance policy fund investing only in gilt-edged would suffer badly from the effects of inflation. Life insurance would then reflect very poor results if inflation continued at a high level over a 10-year period. A high rate of inflation might benefit shares, but investment in shares alone exposes one to the volatility of the stock market, which nowadays in the UK can involve a 50% change in prices in a year or less. The property market has on the whole been more stable, but can be imbalanced if there is crisis as was experienced in 1973.

The endowment borrower does have considerable flexibility (though this is, of course, largely dependent on the attitude of the building society advancing the money which will not always want to allow an extension of the loan period). Thus, unit linked life insurance can really help.

The sums provided as benefits by pure protection policies are normally free of income tax. But there are important differences. For example, the lump-sum benefit provided by a term assurance policy is free of tax. Of course, as soon as it is invested to earn an income then the income is taxable at whatever rate of income tax the recipient is liable. On the other hand, the annual benefits paid under FIB policies are installments of capital rather than income, so they are not liable to income tax at all.

 In the case of benefits payable under an individual permanent health insurance policy, the normal practice is that no tax is payable until the benefit has been paid for a full “fiscal year”. The fiscal year runs from 6 April to 5 April, so the effect of this rule is that benefit may be payable for up to 23 months before any income tax is due. If benefit starts In May 1977, then 11^th months up to the following 5 April 1977 it constitutes a full fiscal year. No more than after a further 12 months has passed will tax be calculable.

 This concession on potential health benefits applies only to the individual taking out it policy himself; and it is counterbalanced by the fact that when tax does become payable, so that it is subject not only to maximize rate and only tax but higher rates where these apply but also to the investment income surcharge. For the fiscal year 1977, the add-on was charged at 10% on the band that means: between £1,700 and £2,250 and at 15% on any extra over. The levels at which the add-on starts to lie on the ratio of 1:2 for those aged older than 65 years.

 Life insurance can therefore be beneficial to you in many ways. There are so many options available with life insurance than it can be confusing at times. In this case, you may request the help of a professional life insurance consultant to ease you out. Simple explanations can effectively aid you.

The human life value method enables you to calculate how much life insurance you need. This can be effectively done in several ways:

• 1. Subtract from earnings, a reasonable estimate of annual taxes and living expenses spent on the insured, in order to arrive at the actual salary needed to provide for family needs. Commonly, this is a percentage of salary. Rather than calculating a composite of each separate need, it is often suggested that the survivors will need around 70 percent of the pre-death income to carry on after the insured’s death. A higher or lower percentage may be needed depending on a particular family’s circumstances. The percentage age of salary needed can be more accurately determined through a detailed examination of the family budget.
• 2. Determine the length of time the net earnings need to be replaced. This could be until the insured’s dependents are assumed to be grown and to no longer need the financial support of the insured, or until the assumed retirement age of the insured.
• 3. Select a rate of return with which to discount the future earnings. A conservative estimate on rate of return would be the return on treasury bills or notes, or the rate of return paid for death proceeds left on deposit with the insurance company. A life insurance company will leave a death benefit in an in an interest bearing account. The rate paid on this type of account is the rate that should be used. A safe assumption would be the rate on a money market or certificate of deposit account.
• 4. Multiply the net salary needed by the length of time needed, to determine the future earnings. Then calculate the present value of the future earnings using the assumed rate of return. This calculation can be performed using a spreadsheet, specialised software, a financial function calculator, or by using discount interest tables.

 The human value method is useful in situations where replacing the income lost due to death of a breadwinner is the primary concern. However, this method only replaces income.

In some countries parents are investing in endowment life insurance policies with a view of saving policy and obtaining a lump sum on maturity of the policy to pay for their children’s education. This is understandable when one considers the rising cost of education, even in the UK.

In the US, where college or university fees tend to be relatively on the high side compared to other countries, some parents take out a number of endowment life policies. The idea is to make an advance provision based the sum or sums insured so that by the time the kids are due to start University, the money is here to pay the fees.

Another way is for parents to take out a policy or sometimes a series of policies on their own name or life and then taking loans to cover the costs of the university fees. On maturity, the lumps sum is then used to pay off the loans. This is obviously useful if the time left to benefit from the endowment policies does not correspond to the time you absolutely need the money. Effectively, the loans are bridging loans until the life endowment policies come to maturity and pay the lump sum.

Many parents though are determined to send their children to university right from an early age. So, sometimes they plan the policy 20 years in advance, in fact right from the time the child is born so that by the time the latter is about 20 years old, the policy comes to maturity and the money is readily available to be spent on the child’s education. If it is an endowment policy with profit, there may even have a bit of money left for other things.

Taking out a life insurance policy would protect your family if you were to die as it pays out a lump sum upon death or if you are diagnosed with a terminal illness.

Your commitment to any life insurance policy is that you fully disclose all information asked when taking out the policy. If you were to be diagnosed with a terminal illness for example and you were to make a claim and did not disclose all information this may result in your policy not paying out and will therefore come to an end.

You must inform your provider who your are taking out the policy with if your circumstances were to change for example if anything was to happen to a member of your family, you change jobs, your level of alcohol intake changes, you were to start smoking or you have had the use of recreational drugs. Again if you do not disclose this information then this may lead to your policy being cancelled and therefore not paying out.

The risk factors involved when taking out such a policy is that if you were to stop paying the monthly premiums then after the 30days the policy would cease.

The policy also has no cash value at any point throughout the term of the policy. Upon the even of death the policy will pay out the sum assured agreed at the start of the policy to help your family and at this point the monthly premiums no longer need to be paid.

With the majority of life insurance plans you are not tied into any particular contract. If your premiums stop then your policy will stop and you will no longer be covered for any of the benefits you have chosen.

No premiums will be paid back and if you want to restart the policy after it is stopped this may not be possible.

if you do want to restart the policy then there maybe a charge to do this, or ask for proof that you are still in good health. They may also ask for proof that your occupation and leisure activities have not changed and are no more of a risk than they were previously.