Life Assurance Q&A

Critical illnesses are more common than people tend to believe and can affect anyone at any time. A number of critical illnesses are being diagnosed at a younger age. In fact in 2009 the average age of critical illness claimants was just 44 years old.

Policies can include something called 'Terminal Illness Cover' which will allow, at the insurance companies discretion, a payout of your policy early if you are diagnosed with a terminal illness where you will die within 12 months.

This is offered as a goodwill gesture by the insurance companies to allow you the opportunity to settle your affairs and make your own arrangements before you die.

It is important to understand that this is not the same as Critical Illness Cover and will only be offered for conditions where your doctor has told you that you will die within 12 months.

Taking Life and Critical Illness Cover together can provide a great method of ensuring you are fully protected against the eventualities of death and contracting a critical illness such as a heart attack or stroke. It can also serve to reduce Critical Illness premiums compared to taking a Life Assurance and Critical Illness Cover separately.

Your policy can include an option called index linking which allows it to increase on an annual basis to offset the effects of the years inflation and increases in the retail price index.

This is important because as time goes by the real time value of your payout will decrease. That is to say that what you can buy for £100,000 today will not be the same in ten years time. Index linking your Life Assurance policy will allow it to maintain that value.

At the time of your death your family will obviously be upset and whilst thinking about your insurance payout will probably not be the first thing they want to think about, it may be necessary to cover your funeral expenses or pay off your mortgage. As such it is important that the process for ensuring your family is paid quickly is in place.

Normally your life insurance payout would be paid into your estate and left to the process of probate to decide how it should be divided up and used. Unfortunately probate can be a lengthy process (at times up to 6 months) especially if your will is contested.

One way to avoid the probate procedure for your life assurance is by having your policy written into trust. Writing your policy into a trust allows you to nominate to whom the payout should be made, meaning that it is paid by the insurance company much faster to exactly who you intended it to go to.

As an added benefit, writing your Life Cover policy into trust can also help to limit the effects of inheritance tax on your estate because the payout would no longer form part of the estate.

Having your policy written into trust can normally be done at no extra charge as long as you include it on the application of the policy itself.