Term Insurance

Did you know?

Premiums are relatively cheap, partly due to a highly competitive market, but also because of increasing life expectancy, due to healthier lifestyles and medical advances.

There are four main types of term insurance:

Level term
The amount of cover remains the same throughout the term of the policy. This type of term assurance is normally used to cover an interest-only mortgage or to provide family protection.

Decreasing term
The sum insured reduces each year, decreasing to nil at the end of the term. The cover can reduce by a fixed amount each year, or in line with a repayment mortgage to match the reducing debt.

Family Income Benefit
This type of policy is ideally suited to providing your family with a replacement income. If you die during the term of the policy, a regular income is paid to your dependants for the remainder of the policy’s term.
The income can be paid monthly, quarterly or yearly. Some policies provide an income which increases each year at a fixed rate, such as 3 per cent or 5 per cent.

Gifts inter vivos
These policies are designed to cover the potential inheritance tax liability that can arise if you make a large gift to someone from your estate while you are alive.

Such a gift is called a Potentially Exempt Transfer or PET. If you die within seven years of making a gift, it is possible that a liability for inheritance tax (IHT) could arise. A Gift Inter Vivos policy lasts for 7 years and the cover decreases in line with the potential IHT liability.

Could you be eligible for a savings-tax refund?
You can reclaim tax going back five years

HM Revenue & Customs (HMRC) estimates that some 2.5 to 3 million savers could be eligible for a refund because they have overpaid income tax on savings in the past.

Basic rate tax at 20 per cent is deducted from savings interest at source (in other words, taken off by your bank or building society before it goes into your account). However, people whose income is below the personal allowance are eligible to have their interest paid gross. All you need to do is fill in an R85 form and send it to your bank and building society.

Many people fail to do so, however, and HMRC estimates that they could be owed about £250m in back tax. To claim your refund, you must fill in a separate form, R40. You can reclaim tax going back five years from the 31 January following the end of the tax year, though the time limit will be reduced to four years on or after April 2010.

 

 
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