Life Assurance - types and definitions.

The various types of Life Assurance can be broken down into 2 main areas:

Cover in the event of:

• Death
• Illness

For both types of cover you can get:

• A lump sum
• Income

Cover in the event of death:

Lump sums 

Life Assurance:

Life Assurance is often referred to as Life Insurance or Term Assurance.  There are several different types of Life Assurance - all will pay a lump sum in the event of the death of the policy holder. 

Mortgage Protection:

Mortgage Protection is simply where a Life Assurance policy is used specifically to cover a mortgage debt.

Interest Only Mortgage: The most appropriate Life Assurance policy to protect an Interest Only Mortgage is a Level Term Assurance (LTA) policy as the amount of cover remains level for the term of the policy and will therefore reflect the fixed level of mortgage debt.

Repayment (Capital & Interest) Mortgage: The most appropriate Life Assurance policy to protect a Repayment (Capital & Interest) Mortgage is a Decreasing Term Assurance (DTA) also known as a Mortgage Protection Assurance policy as the amount of cover falls in line with the reducing mortgage debt.

Level Term Assurance - LTA
Level Term Assurance (LTA) pays out a fixed lump sum in the event of the death of the policy holder, the amount of cover remains constant over the policy term.

Decreasing Term Assurance - DTA
Decreasing Term Assurance (DTA) pays out a reducing lump sum over the policy term until eventually by the end of the policy the amount of cover has reduced to nil. Often used as a cost effiective way of protecting a Repayment (Capital & Interest) Mortgage where the debt reduces over the term of the mortgage.

Income:

Family Income Benefit (FIB)

Family Income Benefit is a form of Life Assurance that pays out a regular income rather than a lump sum. Having an income instead of a lump sum in the event of death takes away the worry about having to invest the lump sum.

It is often used to replace a lost salary or cover set expenses such as school fees.

Cover in the event of illness:

Lump sum 

Critical Illness Insurance or Critical Illness Cover (CIC)

Critical Illness Insurance (CIC) will pay the policy holder a lump sum on diagnosis of one of up to 30 or more specified illnesses – the illnesses covered vary but generally include the major illnesses like cancer, heart attack and stroke to deafness, loss of limb or loss of sight.

The Lump Sum can be used however you like but is often used to repay or reduce the burden of a large debt (like a mortgage) or even pay for household bills and cover potential medical expenses.

It can be combined with a Life Assurance Policy so that a lump sum is paid out in the event of death or earlier diagnosis of a critical illness of the policyholder.

Income: 

Income Protection or Income Replacement (Permanent Health Insurance – PHI)

Income Protection, also referred to Income Replacement or Permanent Health Insurance (PHI), provides the policyholder with a regular monthly income (of up to 50% of your earnings) should illness or accident prevent them from working. They will continue to receive the income until they return to work or retire.