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.
Showing posts with label Term Insurance. Show all posts
Showing posts with label Term Insurance. Show all posts
Cost of Term Insurance
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Continuing further from our previous article on Term Insurance, let’s discuss some more details of term insurance in this article –especially cost and types of term insurance.
What does the term insurance cost?
This depends on several factors, such as the amount of cover you want and the length of the term. Obviously, it's also based on the likelihood of your insurer having to pay out: if you're a smoker and do a dangerous job, you'll pay more than a non-smoking office worker. Term life cover also costs more for men because, on average, they don't live as long. Always compare what's covered by a policy, not just the price. Some might be cheaper than others, but they may not offer the same level of protection.
Whole-of-life insurance
Whole-of-life insurance pays out an agreed sum when you die, whenever that is.
What does the whole life insurance cost?
These policies will cost you more, partly because they will pay out whenever the event (death) happens, but also because of the various charges that come with them. The cost also depends on your lifestyle: if you're a smoker and do a dangerous job, you'll pay more than a non-smoking office worker. Life cover also costs more for men because, on average, they don't live as long as women. Always compare what's covered by a policy, not just the price. Some might be cheaper than others, but they may not offer the same level of protection.
In the next article, let’s talk about Pension term insurance in more details, and also about the tax benefit and limits that are imposed.
Link to previous article on Term Insurance
What does the term insurance cost?
This depends on several factors, such as the amount of cover you want and the length of the term. Obviously, it's also based on the likelihood of your insurer having to pay out: if you're a smoker and do a dangerous job, you'll pay more than a non-smoking office worker. Term life cover also costs more for men because, on average, they don't live as long. Always compare what's covered by a policy, not just the price. Some might be cheaper than others, but they may not offer the same level of protection.
Whole-of-life insurance
Whole-of-life insurance pays out an agreed sum when you die, whenever that is.
What does the whole life insurance cost?
These policies will cost you more, partly because they will pay out whenever the event (death) happens, but also because of the various charges that come with them. The cost also depends on your lifestyle: if you're a smoker and do a dangerous job, you'll pay more than a non-smoking office worker. Life cover also costs more for men because, on average, they don't live as long as women. Always compare what's covered by a policy, not just the price. Some might be cheaper than others, but they may not offer the same level of protection.
In the next article, let’s talk about Pension term insurance in more details, and also about the tax benefit and limits that are imposed.
Link to previous article on Term Insurance
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Term Insurance
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Continuing further from the previous article on Life Insurance, let’s today discuss about the Term Insurance.
Term insurance
Term Insurance is the simplest and cheapest type of life insurance policies available in the market, and is known as term insurance because you have the option to choose how long you want to be covered for, say, 5, 10, 15, or 20 years (this duration is known as the term).
Term insurance only pays out if you die within the term you've agreed. If you live longer than the term, you get nothing. As a couple, you can also take out term cover in both your names, with the policy paying out if either of you die during the term.
Things to look out for while buying term insurance
While it is easy for anyone to think about term insurance, it is equally important that you understand what you are buying. Consider the following questions:
• What type of policy do you buy? For example,
1. family income benefit (a policy which pays out regular income, like every month, instead of a lump sum),
2. increasing policy (where cover and premium will rise over the years),
3. decreasing policy (where cover and premium will fall over the years),
4. renewable policies (which let you renew and extend the original term).
• Check for exclusions in the policy - in other words, there may be certain conditions and situations when the policy won't pay out. For example, most do not cover death due to alcohol or drug usage or suicide cases. You might not be covered while taking part in risky sports like car racing. If your health is poor when the policy starts, some causes of death might be excluded or you might be refused cover altogether.
• Premiums shown are usually fixed for the whole term. There are also contracts where premiums are reviewable after a certain period, usually five years.
• How flexible is the contract? Can you reduce or increase cover easily as your circumstances change? Are there extra charges for doing this? Does cover stop immediately if you miss a payment or is there a period of grace?
• By paying extra, you can usually include a waiver of premium. It pays the premiums if you can't work because of a long-term illness so that your cover is not interrupted.
• If you want to change insurer, check the level of premiums for the new contract before switching (premiums may have gone up because of older age or because you have developed medical conditions). Also check the new level of cover compared to the previous one. Different benefits may be available, and different exclusions may be applied – for example you may not be covered for medical conditions that have developed before the switch even if these were covered under the previous contract. If you do decide to change, make sure you do not cancel your original cover until you are fully covered by the new contract.
• The policy can be set up under trust. This means that in the event of death, proceeds of the policy are paid directly to dependants of your choice. Provided a trust is set up properly, there may be benefits to doing this. However, using a trust may not be suitable for everyone and because of the complexities we recommend you seek financial and legal advice.
In the next article, let’s discuss some more details about Term Insurance
Term insurance
Term Insurance is the simplest and cheapest type of life insurance policies available in the market, and is known as term insurance because you have the option to choose how long you want to be covered for, say, 5, 10, 15, or 20 years (this duration is known as the term).
Term insurance only pays out if you die within the term you've agreed. If you live longer than the term, you get nothing. As a couple, you can also take out term cover in both your names, with the policy paying out if either of you die during the term.
Things to look out for while buying term insurance
While it is easy for anyone to think about term insurance, it is equally important that you understand what you are buying. Consider the following questions:
• What type of policy do you buy? For example,
1. family income benefit (a policy which pays out regular income, like every month, instead of a lump sum),
2. increasing policy (where cover and premium will rise over the years),
3. decreasing policy (where cover and premium will fall over the years),
4. renewable policies (which let you renew and extend the original term).
• Check for exclusions in the policy - in other words, there may be certain conditions and situations when the policy won't pay out. For example, most do not cover death due to alcohol or drug usage or suicide cases. You might not be covered while taking part in risky sports like car racing. If your health is poor when the policy starts, some causes of death might be excluded or you might be refused cover altogether.
• Premiums shown are usually fixed for the whole term. There are also contracts where premiums are reviewable after a certain period, usually five years.
• How flexible is the contract? Can you reduce or increase cover easily as your circumstances change? Are there extra charges for doing this? Does cover stop immediately if you miss a payment or is there a period of grace?
• By paying extra, you can usually include a waiver of premium. It pays the premiums if you can't work because of a long-term illness so that your cover is not interrupted.
• If you want to change insurer, check the level of premiums for the new contract before switching (premiums may have gone up because of older age or because you have developed medical conditions). Also check the new level of cover compared to the previous one. Different benefits may be available, and different exclusions may be applied – for example you may not be covered for medical conditions that have developed before the switch even if these were covered under the previous contract. If you do decide to change, make sure you do not cancel your original cover until you are fully covered by the new contract.
• The policy can be set up under trust. This means that in the event of death, proceeds of the policy are paid directly to dependants of your choice. Provided a trust is set up properly, there may be benefits to doing this. However, using a trust may not be suitable for everyone and because of the complexities we recommend you seek financial and legal advice.
In the next article, let’s discuss some more details about Term Insurance
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