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Torquil Clark Life Insurance Guide

One of three A4, 12-page guides covering insurances, investment and mortgages. The audience was/is predominantly younger people, who are just 'starting out' in terms personal financial planning. Item 2 is the investment guide, item 3 the mortgage guide and item 4 is a benefit leaflet from a SIPP mailing.

2 3 4

Learning to live with Life Insurance

 

First of all, do you really need Life Insurance?

If you live alone, have no dependants, don’t have a mortgage or any other debts, then you most definitely don’t need Life Insurance. (Unless you want to leave an inheritance when you die.)

People who are retired, have a good pension and have paid off their mortgage are also highly unlikely to require Life Insurance.

If on the other hand, you live with someone, have a family (or are planning one), a mortgage or any other debts, and assuming you don’t have a million or two in the bank, then Life Insurance should be one of your ‘priority’ insurances. Why? Simply because others around you might have an awful lot to lose financially if you were to die prematurely.

 

Everyone shares the same concerns….

Although Life Insurance may be a suitable insurance for you, it’s not a universally popular subject to think about or discuss. In fact contemplating why you might need Life Insurance is about as pleasant a thought as spending thirty minutes with the dentist once a week for a year. After all, who actually enjoys facing up to the possibility that life does on occasions take a significant turn for the worse? No matter who you are, or what your circumstances may be, sooner or later even the best laid plans can go wrong. Which is why so many people eventually come to terms with the fact, that on balance, it’s preferable to have Life Insurance than not to have it.

 

What Life Insurance can do for you

In blunt terms, Life Insurance is all about helping your family avoid a potential financial crisis that your untimely death may cause. So if you were to die prematurely, or you became very ill, and you had a life insurance policy, your spouse and children are less likely to be faced with big financial problems. The lump sum, tax-free pay out from your life insurance policy could be used to pay off your mortgage and any other debts and can help meet on-going household expenses. Money from a life insurance policy can also help pay childcare and education expenses. That’s what Life Insurance is all about. If you have it there’s less financial pressure on your family; without it, there’s likely to be a lot more.

 

Worried about having nothing to show for your money?

Before going any further, there are insurances that can pay out even if you don’t die! (See pages XX and XX for further details). But the cheapest option in terms of the premium is usually a policy that is designed to pay out on your (or someone else’s) death and under no other circumstances (See pages XX). It’s most definitely true that Life Insurance is not ‘money in the bank’, but the real question is this: how can you value the peace of mind that life insurance provides? Or put another way, how would you feel knowing that your family would be partially or even completely protected from one of life’s most unpleasant financial dilemmas?

 

Do you think that Life Insurance is expensive or difficult to arrange?

On either count, you couldn’t be more wrong. First of all, premiums are lower than ever before because there’s more competition than ever before. And secondly, by using a specialist broker like ourselves, we can obtain a range of quotations for you in minutes. We can also advise you on the right policy and get it up and running for you in no time at all.

 

 

Clothes, shoes, buses, trains and life Insurance policies…

When you’re shopping for trousers or shoes, do you take pot luck and pick up the first pair you see? No of course you don’t - you look for the size that fits you best. And when it comes to catching a train or a bus, do you get on the first one that comes along? Unless you’re possessed with a highly developed sense of adventure, you’re much more likely to hop on the one that’s going your way. So would you be surprised to know that exactly the same considerations apply to life insurance? In other words, one size does not fit all – there are many different kinds of life insurance policies to choose from. And each policy offers something different. Some pay out cash if you die before a certain age, some pay out cash if you live to a certain age. There are policies that run for all your life and some that don’t. But don’t let that put you off – we’ll do the looking for you. We’ll find the policy that meets your goals and circumstances and ultimately provides the kind of financial benefits that suit you best.

 

Why you should choose Torquil Clark to arrange your life insurance

Torquil Clark Life Insurance is part of the Torquil Clark Group, which is one of the UK’s largest and fastest growing independent financial advisers. Unlike some advisers, it’s always been important to us that our clients are fully aware of the role and nature of the financial products and options available to them; we ensure that happens by providing expert advice in clear, straightforward and friendly terms.   Big enough to reduce your premium Just to give you an idea of what we mean by ‘big’, in the past five years we’ve arranged over £3 billion of life cover for our clients; that’s why we can often negotiate more favourable premiums on behalf of our clients.

Comprehensive, quick and easy
When you ask us for a quote, you are in effect asking a whole range of leading insurance companies to compete for providing the cover you need. Apply for your quote by e-mail and you’ll see immediately which company is offering the best premium. Then, if you wish to proceed, you can start the ball rolling straight away.

The right policy for you

Another benefit many of our clients value, is our expert advice on life insurance. In a nutshell, if you need our help, you can have it and free of charge. So if you’re unsure about exactly how much cover you want or the type of life insurance that’s most appropriate for you, then all you have to do is tell us and we’ll be pleased to explain all the ins and outs to you.

‘Fuss free’ service

We know that once you decide to go take out life insurance cover – or any other kind of insurance – that you want the matter sorted out quickly and efficiently. So we’ll take on as much of the paperwork as we possibly can for you and we’ll also keep in touch with the chosen insurance company to ensure that your cover is in place ASAP.

The Best Protection Adviser in Britain
That’s not us saying that – it’s what we’ve been voted as being by one our industry publications. What the accolade actually means is, that of all the companies qualified to offer insurance advice, we are the best because of the quality of the service we provide our clients. High quality advice delivered in easy-to-grasp terms by friendly and enthusiastic people – that’s precisely what you’ll receive when we arrange your insurances.

 

Life Insurance – the basics

The primary purpose all Life Insurance policies, is to provide a lump sum of tax free cash to the policyholder’s beneficiaries. Generally speaking, the policyholder would usually be (but not always) the main breadwinner and the beneficiaries, in most instances, would be the breadwinner’s family. It is possible to insure two lives on the same policy, so if there two breadwinners, both lives can be insured.

The payments you make for insurance cover are called premiums, which are usually paid to the insurance company every month. Premiums are, by and large, calculated on the following basis:

 

See page XX for further details on how the premiums are calculated.

 

Life Insurance? Or Life Insurance with a ‘plus’?

The least expensive or most affordable form of life insurance is called ‘Term Insurance’. In a Term insurance policy every penny of your premium goes towards providing your life cover. So if all you want of an insurance policy is that it pays out a guaranteed lump if you die before a certain age, then Term Insurance may suitable for you. If however you want a life insurance that pays out a guaranteed lump sum at whatever age you die and could also pay out a sum of money whilst you’re still alive, then you may want to consider a ‘Whole of Life’ policy.

 

(Level) Term Insurance

This is usually the cheapest form of life insurance. It’s called Level Term Insurance because the premiums are fixed as indeed is the lump sum (the sum assured) that’s paid out on the death of the insured life. This kind of insurance runs for a specified number of years (the term) and then expires. So if the policyholder dies before the expiry date, then the policy pays out the sum assured; if however the policyholder is still alive at the expiry date, then the policy terminates, no sum assured is payable and no further premiums are required.

 

Variations

Decreasing Term Insurance – Term insurance that’s linked to the outstanding balance on a capital and interest mortgage. As the mortgage reduces so does the policy’s sum assured and although the premium is fixed for the term of the policy, the premiums are lower than a Level Term Insurance policy.


Pension Term Insurance – A pension-related life insurance policy where you get tax relief on the premiums you pay - subject to the rules applying to pension schemes. The premium quoted will be net of 22% basic rate tax and premiums are taken from your bank net of basic rate tax; higher rate taxpayers will get a further 18% relief via their annual tax return. If however, your circumstances change - you move abroad for example - you may become ineligible for this type of policy.

 

 

A policy that’s more suited to people needing level or decreasing term life cover.

Pension Term Insurance is not suitable for those looking for family income benefit, critical illness, income protection or whole of life cover and those seeking Pension income Making pension contributions above the higher amount of either £3,600 a year or 100% of annual earnings (maximum £250,000). Anyone who is likely to have pension funds which total more than £1.5m.

Renewable Term Insurance – Allows you to take out a policy for short periods of time – typically 3-5 years. At the end of each period, you have the guaranteed right to renew the policy – no matter what your state of health - for a further term so that you’re never left without cover. The premiums start off low, but increase each time you renew the policy.

 

An ideal option if you want to keep premiums low in the first years of cover

Increasable Term Insurance –This option gives you the right to increase the sum assured, irrespective of your state of health, every year to protect your sum assured against the effects of inflation. The premiums are higher than Level Term insurance and increase in line with the sum assured.

 

If you want to make sure that your sum assured isn’t diluted over the years, this could be for you.

Convertible Term Insurance – Gives you the right to change a term insurance policy into either an endowment policy, or a whole of life policy, with the same sum assured.

 

An option if you think you might want to convert term insurance into investment-related insurance at some point in your life.

Family Income Benefit – Rather than paying a lump sum upon death of the insured, this insurance pays a fixed sum of money annually to the policy’s beneficiaries until the policy expires. For example, if a policyholder established a 20-year policy but then died after six years, then payments would be made for the remainder of the term of the policy – i.e., 14 years.

Ideal where beneficiaries want the security of a regular income rather than a lump sum.

 

Whole of Life

In common with Term Insurance policies, Whole of Lifepolicies also provide a fixed amount of life insurance cover. But there are big differences between the two kinds of policies…

Whole of Life policies guarantee to pay out at whatever age the policyholder dies – i.e., the policy stays in force until the policyholder dies.

Whole of Life policies have a ‘surrender’ value – i.e., you can cash in the policy and get some money back. (Be aware that cashing in a policy terminates the policy and all the lump sum benefits are lost…)

Surrender Values vary greatly but basically, what you’ll get back will depend on the following:

If a Whole of Life policy is written on a joint-life basis, the beneficiaries can use the proceeds they receive from the policy to pay any Inheritance Tax that may be due, rather than paying the tax out the of the deceased’s entire estate.

Variations

Non-profit whole of life policy – Apart from life cover, the policy will accumulate a surrender value, which is likely to be very small.

 

The cheapest all the Whole of Life insurance options, but still a Surrender Value.

With-profit whole of life policy – The amount of life cover will be increased annually by the addition of a bonus; this bonus – which is sometimes called a Reversionary Bonus – cannot be taken away and increases the value of the sum assured. Sometimes a final or terminal bonus will also be paid on the death of the insured. The surrender values and premiums of With-profit whole of life policies are higher than non-with profit whole of life policies.

 

An expensive option offering commensurately higher returns.

Flexible whole of life policy (or unit-linked) – The policyholder specifies the policy’s upper and lower limit of life cover. So if at certain points in life the policyholder needs less life cover, then the sum assured is reduced towards the lower limit and more of the premium is available for investment. The premiums are used to purchase units in one or more of the insurance company’s investment funds. Every month the insurance company collates the cost of providing the life insurance for the following month and deducts the cost by cancelling some of the units purchased to pay for the cover. This way the policy grows in value as the number of units accumulates; furthermore, the value of the units may also rise.

 

An appropriate option if you believe your life insurance requirements will vary from time to time.

Endowment Policies – More of a savings scheme than a life insurance policy. The insurance company invests the majority of the policyholder’s monthly premium to build up a sum of money over a period of time, with the balance of the premium being used to provide a relatively small amount of life cover.

If you want to build up a lump sum over time and have some life cover, then an option to consider.

Other types of life Insurance policies

Critical Illness Cover – an insurance that pays out a lump sum when a policyholder is diagnosed as suffering from a specified but survivable illness and regardless of whether the illness prevents the policyholder from working or not. The types of illness covered vary from insurer to insurer, but in the main are; heart attack, stroke, cancer, major organ transplant and coronary surgery. The lump sum paid out can be used as follows:

A Critical Illness policy can be taken out alone or added to a Term, Whole of Life or an Endowment policy.

Suitable for people who would like to be as comfortable as possible having survived a serious illness.

Types of Premiums

Guaranteed – The life insurance company guarantees that your monthly premium will never increase

Reviewable – The life insurance company has the right, at set intervals, to increase the premium. A policy with Reviewable premiums may initially be cheaper, but over time the premiums are more than likely to increase.

Index Linked or Indexation – You have the right to increase the benefits from your insurance policy every year at a percentage of your choosing – subject to certain limits. When benefits are raised so are the premiums; benefits are normally increased in line with the RPI (Retail Prices Index) or the NAEI (National Average Earnings Index).

Waiver Of Premium – A facility that lets you stop paying your premiums for a certain period of time. (If you are unable to work because of illness for example.) The policy wording should be checked carefully to see precisely what conditions apply and not all policies offer the option; with those that do, the waiver is sometimes automatically included or is an optional extra. Typically, including the Waiver of Premium option could increase your premiums by around 6%.

 

Waiver of premium is a relatively cheap and straightforward way of making sure that your life cover would continue even if your finances were temporarily strained.

 

The application process

What the insurance company needs to know…

Important note: you should include all relevant information on your application - failing to do so is known as ‘non-disclosure’ and could eventually result in a claim being refused by the insurance company. (If you’re not sure what information is or isn’t relevant, please call us and we’ll be pleased to advise you.)

When the insurance company receives your application, it will be assessed by specialists. The information you provide on the application form helps the insurance company to decide whether your application is a) accepted at face value, b) needs supporting with more information, or c) is declined altogether. If further information is required, usually that takes the form of a written report from your GP, the results of a medical examination, or your answers to a medical questionnaire.

Another consideration is the amount of cover requested. The insurance company would look at an applicant’s financial circumstances and assess whether they are relative to the amount of cover required. So if for example you request cover that totals 50 times more than your annual income, then the insurance company may ask you why you want to pay for a lot more cover than it appears you need….

Why quoted premiums can increase

Health

Sometimes the premium initially quoted will increase because some or all of the following points come to light and are factored into the underwriter’s risk calculation. If for example, an applicant is overweight, suffers from high blood pressure, or there is a family history of poor health then the initially quoted premium will be subject to a ‘rating’ – it will be increased.

Lifestyle

If an applicant drinks alcohol or smokes, then the premium can again be increased. Premiums can also be weighted if an applicant’s occupation is known to be hazardous to health – e.g. someone who flies a lot will pay higher insurance premiums. Anyone who participates in dangerous hobbies such as mountaineering may for example be declined for cover.

 

Other things to think about when making your application….

Joint Life Policies

– Instead of taking out two single life policies, you and your partner can take out a joint policy. However, this policy only pays out once – what’s known as a ‘First Death’ basis - and having done so, would leave the other person without any life insurance cover. Furthermore, this type of policy is only appropriate when you and your partner wish to be insured for exactly the same amount.

Two single life policies although costing more will offer more cover and allow you to choose different levels of cover.

  Life-Of-Another Policies - Your husband, wife or partner takes out life insurance based on your life; if you die, the policy pays out to them directly. As with any other life insurance policy, there must be an insurable interest on the life you are insuring, i.e. you must stand to lose out financially if the insured were to die. These policies are usually used by people who insure their ex partners to cover the loss of maintenance payments.

Writing the Policy in Trust – This

means that the lump sum pay out goes directly to named beneficiaries and does not form part of the value of your estate. The benefits are that the proceeds of the claim may not be subject to Inheritance Tax and because the proceeds are paid directly to the nominated beneficiaries there are none of the time-consuming legal implications of it forming part of your estate. You may wish to seek the advice of your solicitor when completing a Trust Form to make sure that what you stipulate is not contrary to the contents of your will. Most insurance companies will offer the option of writing the policy in trust at no extra charge.

 

 

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