Assurances

Main types of Assurance

Endowment Assurance

An endowment policy is a life assurance contract designed to pay a lump sum after a specified term or on earlier. Policies are typically traditional with-profits or unit-linked.

Endowments can be cashed in early - known as surrendered - and will then be paid the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid in to it. During adverse investment conditions, the encashment value or surrender value may be reduced by a 'Market Value Adjuster' to allow for the need to cash in units at a time when investment conditions are not ideal. This means that the investor would receive the surrender value less the market value adjuster.

Life Assurance

Life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death. In return, the policy payer agrees to pay a stipulated amount called a premium at regular intervals or in lump sums.

Term Assurance

The sum assured is payable only if the life assured dies within a specified period of time (the term). Term Assurance is also known as temporary assurance and has no investment element.
Characteristics are:
• term can be anything between a few months to 40 years;
• if the life assured survives the term the cover ceases with no return of premium;
• there is no maturity or surrender value;
• if the premium is not paid within a period of time (normally 30 days) the policy will lapse.

Reinstatement will be allowed within 12 months provided that all outstanding premiums are paid and evidence of continued good health is provided;
• premiums are normally paid monthly or annually, single premiums can be accepted;
• premiums are normally level even if the sum assured varies.

Level Term Assurance

With level term assurance the sum assured remains level throughout therefore the real value might be eroded by inflation. Premiums are level paid annual/monthly or single premium.

Uses: family protection, key person insurance, covers for loans, debts.

Pension Term Assurance

People who are eligible for personal pensions or stakeholder plans may be able to take out term assurance within the plan, sometimes known as pension term assurance which means they obtain tax relief on the premiums at their highest marginal rate.
Occupational pension's schemes also offer their members death in service benefits. If the scheme does not provide the maximum death in service benefits then employees can choose to make up thedifference with life cover arranged through a freestanding additional voluntary contribution plan.

Decreasing Term Assurance

Increasing term assurance

Increasing term assurance Sum assured increases each year by a fixed amount or percentage of the original sum assured. Underwriting will be based on the final, and not the initial sum assured.

Convertible Term Assurance

A convertible term assurance is a level term assurance with the option to convert the policy during the term to a whole of life or an endowment without the need for further medical evidence.
Certain rules apply:
• the conversion is normally carried out by the cancellation of the term assurance and the issue of a new whole-of-life or endowment policy. A new endowment can extend beyond the end of the original convertible term policy;
• the option can only be exercised whilst the convertible term assurance is in force;
• the sum assured on the new plan cannot exceed the sum assured of the original convertible term assurance;
• the premium for the new plan will be the current standard premium for the life assured's age at the conversion date. Useful for people who:
• want to begin a policy taking advantage of current good health;
• want a more permanent contract but cannot afford the premiums yet.

Whole of life assurance

Whole of life assurances pay out policy benefits on the death of the life assured whenever death occurs provided that the policy remains in force.
Premiums payable:
• throughout life or
• limited to a fixed term or a chosen age.
Acquires a surrender value - but it is not an investment policy.

Policy loans - this is an alternative to surrender where insurance company will offer a loan of up to 90% of the surrender value. The loan will be repaid, together with interest, when the sum assured is eventually paid out. Whole of life policies can be written on single life or joint lives (first or second death). They are mainly used to provide for family protection for self and dependants and to protect the value of the estate on death from inheritance tax.

Whole of life policies can be taken out on a number of policy bases:
• non-profit;
• with-profits;
• unit-linked;
• unitised with-profit;
• low cost;
• flexible; and
• universal.

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