Life insurance is the answer. It provides financial protection to help your family or business to manage after your death. The peace of mind which life insurance brings helps you to formulate clear plans for the future.

Life Insurance as Protection - Term Insurance

Term insurance (also known as "temporary insurance") provides financial protection if you die within a specified period known as "the term". This period might be 10, 15 or 20 years although you can arrange policies to cover you for periods as short as one month. If you are alive at the end of the term no payment is made.

Term insurance is the cheapest form of protection. For just a few pounds a month your dependants or business colleagues can be covered for several thousand of pounds.

There are three main types of term insurance:

Decreasing Term - The sum insured reduces by a fixed amount each year, decreasing to nil at the end of the term. These policies are usually used to cover a mortgage or other loan and they pay any outstanding repayment if you die early. Remember, though, at the end of the term nothing is payable.

Increasing Term - The sum insured increases each year by a fixed percentage of the original sum insured. These policies are designed to increase your insurance protection as your earnings increase or against inflation.

Family Income Benefit - If you die during the term of the policy a regular income is paid to your dependants for the rest of the term. The income can be paid monthly, quarterly or yearly. Some policies provide an income which increases each year at a fixed rate - say by 3% or 5%.

Optional Extras

Most life policies have optional extras:

Waiver of premium - If you cannot follow your normal occupation because of illness or injury, the insurance company will pay your premiums to maintain the benefits under the policy.

Disability Benefit - The sum insured is payable if you become permanently disabled. There is no further payment on your subsequent death.

Critical Illness Cover - The sum insured is paid out if you are diagnosed as having contracted one of a specified range of critical illnesses.

Increase Option - The sum insured increases annually in line with inflation or by a fixed percentage.

Taxation

Provided your policy is a "qualifying policy" the benefits paid are not subject to income tax. To qualify, a policy has to satisfy certain statutory conditions. These include providing a minimum sum insured payable on your death. Also, premiums have to be payable at annual or shorter intervals for at least 10 years or until your earlier death. If you are a higher rate tax payer and surrender the policy within the first 10 years, some income tax may be payable.

Protecting Your Family

Young people on perhaps a limited income find that term insurance is the best buy. The term can be chosen to cover the time when children are growing up and expenses are high.

Some families find a regular income more useful than a lump sum. For them a family income benefit policy is best.

House Purchase

With life insurance any outstanding mortgage is fully repaid should you die. Under a repayment mortgage your payments are part interest and part repayment of the loan. Decreasing term insurance ensures that if you die before the end of the mortgage term, the outstanding amount is fully repaid.