Pension Term Assurance (PTA)

Yesterday, we concluded the article on Cost of Term Insurance. Today, in this article, we’ll highlight the Pension Term Insurance or PTA, which is another good insurance plan to consider.

PTA is a type of term assurance which uses the rules for pension schemes to provide life cover. You do not have to pay any of your contributions towards an income at retirement and instead they can all be paid into life assurance cover.
Because PTA uses pension tax rules, you get tax relief or tax benefit or tax advantage on the premiums you pay into it. But it also means that the pension rules apply such as the limit on the pension contributions you can make every year, and the amount of pension pot you can accumulate over a lifetime without incurring a 40% tax charge. Therefore this type of term assurance may have an impact on any other pension arrangements you have or take out. Bear in mind PTA provides life cover - it pays out on your death and it will not give you a pension income.

What is it?

Stand-alone Pension Term Assurance (PTA) is term assurance which uses the rules for pension schemes to provide life cover. You do not have to pay any pension contributions and you can just take out life assurance cover.
But, following an announcement by the Chancellor in the March 2007 Budget you will not get tax relief on the premiums you pay on new stand-alone PTA policies. Existing PTA policies taken out before 14 December 2006 and which are in force by 31 July 2007 are not affected and will continue to enjoy tax relief on the premiums.
Stand-alone PTA pays out on your death. It will not give you an income in retirement. PTA won't necessarily be called pension term assurance; firms can use their own marketing names for it, so make sure you read the policy documents to make sure you understand what you're buying.

Tax relief

Given this change in the tax rules, stand-alone PTA will no longer have a tax advantage over ordinary term assurance products. So if you are considering PTA, you should look at ordinary term assurance too in deciding which product is cheapest and best meets your needs.


Policy options

If you have an existing policy where you can increase your cover by paying higher premiums, you will still get tax relief on those increased premiums.
However, if your policy doesn't include this option, you won't be able to increase cover and get tax relief on higher premiums.