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Life assurance products are designed to help your family when you die, but are taken out for various reasons. It is not a pretty subject to discuss and many people like to avoid the subject of death. However, it is far better to plan ahead than wait until it is too late or an accident occurs and it is too late. Your family depends on you to protect them financially, as well as to be there. Sometimes you cannot have a choice to be there for them, but you can ensure that your passing whether due to an illness or sudden death does not leave your family in financial turmoil.

Two products exist for basic life cover: whole of life assurance and term assurance. Each works in a different way while offering benefits that can be very helpful to you and your family. The following four benefits will be explained while looking at the differences of term and whole of life assurance. Term assurance means you pay a monthly premium for a specific time. As long as you pay the premium the life cover will payout at death as long as it is within the term of the policy. Whole of life has a potentially larger premium because the benefits are longer & guaranteed in nature. It is designed to protect you until death occurs. This means you are assured of a payout with whole of life, but with term insurance you may not see a payout.

Funeral Expense Cover
Funeral expense cover is only a part of whole of life assurance products. It is a specific clause included in the contract that the expenses for your funeral will be covered should you die at any time. You can also have a pre-paid funeral plan that will work in a similar manner. With pre-paid funeral plans you pay now so that at the time of your death the funeral is paid for. Term insurance, if it is still within the term will payout the amount you are insured for. You can obviously use the money for funeral costs as long as you receive it in a timely manner. With whole of life or prepaid plans you do not have to worry about meeting certain qualifications or payment being received in time.

Mortgage Protection
There are two types of term insurance that are going to offer mortgage protection: level term and decreasing term. A level term insurance policy has a lump sum that will not change overtime. It is the amount given to your beneficiaries when you die as long as the term insurance policy is valid. This can be used when an interest only mortgage is taken out as the balance will remain level & thus matched by level cover if the life assurance plans.

Also, some mortgagors will take out level term assurance, even though they have a capital & interest mortgage and a reducing mortgage balance. The reason being is that they like the idea that as the mortgage reduces, the excess life cover provided by the level term assurance will offer life cover over & above the mortgage. The difference in cost between level & decreasing cover can sometimes be minimal and thus the extra cover provided to some people may seem nominal & therefore worth the extra cost.

Decreasing term insurance means as you pay off your mortgage, the insurance amount will decrease in line with it. This lowers your monthly premium payment compared to a level term assurance plan, but also leaves less for your beneficiaries. It is basically set up for mortgage protection only instead of funeral costs and living expenses after you die. With level term insurance you have a little more insurance cover for living expenses and funeral costs to leave the family.

Whole of life assurance is a policy that can cover just about any expenses left behind by you. Your family can decide how they are going to use the money they receive from your life insurance cover. This means it can be used to help repay a mortgage or cover a few mortgage payments. However, generally speaking level term and decreasing term assurance products are meant for covering retirement mortgages like enhanced equity release products.

Protecting Income Should a Partner Die
In the event you die and you are the main income earner for the family your term or whole of life insurance product can help cover the loss of income your beneficiaries face following their loved one’s death. The payout from the insurance policy can always be used as your beneficiaries see fit. However, level term insurance is usually there to help protect your family should they lose your income. Its design is based on making sure your family will not suffer and sometimes can include flexible options such as a conversion option, renewal option and critical illness cover as add-ons.

Inheritance Protection
The main focus of any life cover product, including whole of life and term assurance, is to provide inheritance protection for your family. Whether you use the funds to repay a mortgage, for expenses due to loss of income or funeral costs it is money your family does not need to come up with. They can live comfortably for a few years with the insurance payout or set it aside as inheritance to be used as or when needed. With retirement mortgages, your family may want to keep the home you shared. Life cover may be enough to repay the mortgage so the home can be kept in the family. These are just four benefits and the differences between life cover products that can be helpful to you and your family.

Should there be a potential inheritance tax bill upon the death of the second party; a life assurance policy to suit could be taken out. This would be a second death policy so the proceeds are taken out on the second death & essentially should always be placed into trust. The reason for the trust is so that the proceeds are paid directly to the correct person and without having to apply to the courts for permission. More importantly by placing under trust does not add to the existing inheritance tax bill. Proceeds from a trust are classed as being payable outside of one’s estate & therefore not liable to inheritance tax.