There are no laws in the UK that require a person to have life insurance. It’s an entirely voluntary insurance. About 40% of the UK’s working population is covered by life insurance either through their policy or via an arrangement through their employer.

You have to be a UK resident in order to buy a life insurance policy from a UK based insurance company. This is not a requirement laid down in UK law but UK laws and tax arrangements make it impossible for a UK based insurance company to offer insurance to anyone other than a UK resident. But be aware that if having taken out life insurance, you later live abroad; your policy will be invalidated. Naturally, invalidation does not apply if you are on holiday but if you have a short-term work assignment abroad you are well advised to inform your insurance company before you go.

All UK Insurance Companies are subject to UK Corporate Laws. However, there are special regulations that only apply to insurance companies. These control the value of the risks the companies take on in relation to their financial reserves. These regulations are designed to ensure that your insurance company will be in a position to pay if you claim.

The Data Protection Act 1998 is concerned with way all UK businesses store, safeguard and use the data they collect about people. This is particularly important within the life insurance industry as the companies store significant amounts of very personal information about you – including your age, health record and life style. One of the key provisions of the Data Protection Act says that if a business wishes to pass on your information for marketing purposes, the business collecting the data must tell you of its intention and give you the opportunity of refusing permission for your data be used in that way. Incidentally, all reputable web sites selling life insurance will have a “Privacy Statement” which tells you how they handle your information and how it is used.

The Financial Services and Markets Act (2000) is the most important piece of legislation affecting the promotion of financial services in the UK including life insurance. The Act is highly complex but is primarily concerned with protecting you the customer. The implementations of the Act are overseen by the Financial Services Authority (FSA). The FSA regulates all forms of the promotion of financial products and services including the activities of financial and mortgage advisors in the UK. Their aim is to ensure you receive clear professional advice that reflects your personal circumstances. They also ensure you have a route to compensation should it be proved that you received inadequate or poor advice.

For the layman, the FSA’s biggest impact is reflected in the advisors they talk to. The FSA seeks to ensure that all financial advisors are trustworthy and competent which includes being well supervised and well trained, and that any advice is given in your best interests. The FSA also ensures that you are given full and accurate information about the products you are being advised to buy both before and after you have bought them. They also closely oversee the organizations that actually create the financial products.

In fact everyone and every organization giving financial advice in the UK must be authorized by the Financial Services Authority.

However, the Act makes a distinction between financial products bought as a result of a recommendation from a Financial Adviser and “Execution Only” business. Execution only is where a customer is wholly responsible for the selection of the investment and therefore the financial advisers’ sole responsibility is to process the purchase efficiently. Under Execution Only, the Adviser bears no responsibility for the products suitability for the client’s needs.

You should be aware that many of the web sites promoting life insurance operate on this Execution Only basis. However, most web site operators provide extensive information to enable the client to make an informed choice. Sometimes the information is published on the web site and sometimes provided during a follow-up telephone call. Either way, within their Terms of Business the web site will have to tell you on what basis they provide financial services and as part of your application, you will normally be required to confirm that you have read those Terms.

Those Terms of Business will always include details of a complaints procedure. In outline, if a customer wishes to complain, then the customer must detail the complaint in writing and send it to the Compliance Officer for the business employing the advisor. That business then has to investigate the complaint and reply to the customer in writing. If the Compliance Officer upholds the complaint, and the customer has suffered a financial loss as a result, then the business must agree a financial settlement with the customer. Ultimately, if the customer has suffered financial loss and cannot accept either the organizations’ conclusions or their proposed financial settlement, then the situation can be referred to the Financial Ombudsman. The Financial Ombudsman’s service is free to the customer and they are wholly independent. The Financial Ombudsman’s decision is usually binding on both parties.

The other central piece of protection for the customer is the Financial Services Compensation Scheme. This provides the customer with a level of protection if a financial organization regulated by the FSA becomes insolvent and cannot properly meet its financial responsibilities to its clients.

The average man in the street assumes that Life Insurance and Life Assurance are names for the same form of insurance. How wrong they are! But don’t hang your head in shame; many financial commentators get it wrong too! Life Insurance and Life Assurance perform different financial roles and are poles apart in cost – so it helps to surf for the correct product.

Life Insurance provides you with insurance cover for a specific period of time (known as the policy’s “term”). Then, if you were to die whilst the policy is in force, the insurance company pays out a tax-free sum. If you survive to the end of the term, the policy is finished and has no residual value whatsoever. It only has a value if there is a claim – in that context it’s just like your car insurance!

Life Assurance is different. It is a hybrid mix of investment and insurance. A Life Assurance policy pays out a sum equal to the higher of either a guaranteed minimum underwritten by the policy’s insurance provisions or its investment valuation. The value of the investment element is then a reliant on the Insurance Company’s investment performance and length of time you have been paying the premiums.

Each year the life insurance company adds an annual bonus to the guaranteed value of your life assurance policy and there is normally an extra “terminal bonus” at the end. Therefore, as the years go by your life assurance policy increases in value as the investment bonuses accumulate. The value of these bonuses is then determined by the insurance company’s investment performance. Once investment value has been assigned to the policy, you can cash it in with the insurance company. However, most people get a far better price for their life assurance policy by selling it to a specialist investment broker rather than cashing it in with the insurance company.

If you were to die during a Life Assurance policy’s term, the policy pays out the higher of either the guaranteed minimum sum or the accumulated value of the annual investment bonuses. However, if you are still living when the policy terminates, you usually get a bigger payout. This is because with most insurance companies, an additional terminal bonus is awarded.

There is a also a specialized form of life assurance called “Whole of Life”. These policies remain in force for as long as you live and as such have no preset term.

There is also a practical difference for the internet user. Whereas you can buy life insurance online, the Financial Services Authority views life assurance as fundamentally an investment product. As such they believe it is best suited to being sold by a Financial Adviser with advice based on the Advisors full understanding of your personal details. Therefore, you will be unable to buy life assurance online. However, you can use the internet to find a suitable financial adviser with whom you can meet and discuss your requirements.

What are Life Insurance policies and Life Assurance policies used for?

Life Insurance is usually a focal point of the family’s financial protection. It is ideally suited to ensure that known debts such as a mortgage, are repaid in full in the event of the policyholders death.

When it comes to providing a lump sum for general use in the event that the policyholders were to die whilst the policy was in force, either life insurance or life assurance can be used. The differences are that with life insurance the size of payout would be preset whereas with life assurance it would depend on the guaranteed minimum and the insurance company’s investment performance. But remember, at the end of the policy’s term life insurance is worthless, whereas life assurance should payout a sizeable investment sum. In this context Life Assurance seems far more worthwhile but in practice more people elect for life insurance. Why? It’s a matter of cost. Life Insurance is considerably cheaper than Life Assurance. Furthermore, in recent years, investment returns on Life Assurance policies have fallen significantly and many insurance companies have placed penalties for cashing in policies early. This has adversely affected the resale value of Life Assurance policies.

Finally, if you want a product to provide a lump sum on your death whenever that is with a minimum payout guaranteed, you’ll probably elect for Whole of Life insurance. It’s really a form of lifetime investment with the benefit of a guaranteed minimum. They’re particularly useful for Inheritance Tax Planning.

Ladies, if your mother or any other female blood-line relatives have a history of breast or ovarian cancer then from next year onwards you could face higher life insurance premiums. You could even be refused cover altogether.

When these women apply for life and critical illness cover, the insurance industry wants to ask them whether they have been tested for the gene mutations BRCA1 or BRCA2. These are the gene complications that increase the chances of them developing these cancers. But before the insurance companies can ask these questions on their application forms, they must get approval from the Genetics and life Insurance Committee, the body that advises the Government on these and similar issues.

In the coming months the Association of British Insurers (ABI) will be requesting the Committee for authority to ask women whether they have been tested positive for BRCA1 or BRCA2 gene mutations. These are the mutations that are present in 1 in 10 of newly diagnosed cases of ovarian cancer and 1 in 20 of new cases of breast cancer. Approximately 1 in 850 women in Britain inherit a faulty BRCA1 gene and of those, 14 – 18% will develop breast cancer during in their lives.

On the web site for the Genetics and Insurance Committee we found a notice saying, ” The Committee expects that the Association of British Insurers will submit in late 2006/2007 four revised and updated applications for the use of adverse results from the predictive genetic tests of the BRCA1 and BRCA2 genes (breast/ovarian cancer) in helping to determine life insurance premiums for life and critical illness insurance”.

So far, application forms issued by British insurance companies are only allowed to ask for the results of predictive tests for Huntington’s disease. Even then, the question can only be asked when the application is for more than £500,000 of life insurance cover or more than £300,000 for critical illness insurance or over £30,000 for payment protection insurance. This rule is set under an agreement entered into by the insurance industry which is due to expire in 2011 but the Chairman of the ABI’s Genetics Working Party, Harpal Karlcut, is reported in the trade insurance magazine “Cover”, as saying:

Who needs it?

Life Insurance cover provides either a lump sum or an income on the untimely death of an individual. Therefore, anyone whose death would create a financial loss to another has a need for life insurance cover. This could/should include the following:

Parties to a Mortgage or indeed a loan (mortgage life insurance cover) Anyone with dependents (whilst a parent may not work, surely there would be a financial loss if anything were to happen whilst there are young children to be cared for) Key Individuals where a business would suffer financial loss on the death of an essential employee. In essence, any situation where monetary loss would be incurred could possibly have a need for life insurance cover.

Types of Cover

Term Life Insurance

Term life insurance is as it suggests taken out for a specified number of years at outset. With this type of policy, you are merely paying for the cover provided based on your age, health and the term. Therefore, it is important to obtain the most competitive term life insurance quote for the cover provided. It is possible to take out term life insurance that will pay level lump sums, decreasing lump sums (mortgage life insurance cover) or regular payments (income).

Whole of Life

As the name suggests, this type of policy will provide cover through an individual’s life time. However, when obtaining a whole of life insurance quote as well as level of premium there are other aspects to be considered such as investment performance, effect of charges, financial strength of the company.

Which one?

There are good arguments for both type of policy. We would suggest that the following could make up the main considerations:

Cost – Whole of Life insurance, as a rule of thumb is usually the more expensive type of product.

Period that cover is required – If cover is required for a specific period i.e. a Mortgage then Term cover could be more appropriate

Future Plans – If, for instance a family is planned, then whole of life can offer the flexibility to increase cover for this or other like events.

Critical Illness (CI) now provides an equally important benefit and we would strongly recommend that you view the CI Factsheet.

This article is meant merely as a rough guide to the needs and options surrounding Life Assurance. It is by no means a comprehensive outline to anyone’s particular requirements. It would be, therefore, wise to use this as a guide and seek more comprehensive advice, via a professional Independent Financial Adviser. All advisers are Regulated and Authorized by the Financial Services Authority (FSA) and are now required to explain their status to you (either independent and fee charging, independent but paid by commission only, or tied)

More and more people in the UK are buying life insurance online and the numbers seem to be doubling every two years. The reasons are clear. Prices are lower on the Internet and life insurance is fundamentally a simple insurance product.

Despite the underlying simplicity of life insurance, most web sites channel their online clients through a telephone based help and advice service manned by experienced personnel.  They represent your safety net so if a little technical knowledge is called for, help is at hand.

But it’s always a good idea to have a few Top Tips in your back pocket when you’re shopping online for life insurance. They’ll help you ask the right questions and find the best policy.

• Always have your Life Insurance policy “Written in Trust”.

This means that in the event of a claim, the money goes directly and immediately to the person(s) you nominate when you first take the policy out. It also avoids all possibility of your estate having to pay Inheritance Tax on the proceeds of your policy and that could represent a 40% tax saving.

All you have to do is tell the online brokerage organizing your policy that you want your policy “Written in Trust” and the names of the people who the life insurance company pays in the event of a claim. They will then sort it all out for you. The extra good news is that this service is invariably free of charge.

• In the early years a Reviewable Life Insurance Policy will be cheaper but a Guaranteed Policy will work out a better buy in the longer term

With a “Guaranteed Policy” the insurance company guarantees never to increase your policy’s premium.

With a “Reviewable Policy” you agree that your insurance company can review the cost of your policy at regular intervals. But don’t be kidded – in our experience a “review” is just another word for a price increase. After all, who’s ever heard of an insurance company passing up a chance to charge you more! The review intervals are usually between 2 to 5 years but this does vary between insurance companies. You will find the details of the review intervals on the documents sent to you before you accept the insurance – these are called The Key Features Documents.

So, comparing otherwise like for like policies, in the early years the premiums for a “Reviewable Policy” will undoubtedly be lower than the premiums for a “Guaranteed Policy”. Thereafter, the premiums for a Reviewable Policy increase eventually catching up with and overtaking, the premium for a “Guaranteed Policy”.

In our experience, you can expect the monthly premiums for a Reviewable Policy to exceed those of a guaranteed policy in about 7 to 10 years and then within the following 10 years, more than double again. If your budget is currently tight then by all means choose a Reviewable Policy – after all your salary may increase in coming years and ease the strain. On the other hand, if the premiums for a Guaranteed Policy are affordable, we think they represent your best buy.

• Thinking about a Joint Life Insurance Policy?

A Joint Life Insurance policy is usually written on a first death basis. This means that the policy will pay out on the death of the first policyholder, subject to the policy being in force at the time. This leaves the second person uninsured and older. Older people can struggle to get life insurance at an affordable premium, so rather than a Joint Policy consider taking out separate policies now. Overall it will work out a little dearer – but you get twice the cover and double the peace of mind.

• Taking out a Life Insurance Policy? Now would be an ideal time to include Critical Illness cover.

Are you likely to need Critical Illness Insurance in the future? Yes? Then consider adding it now to the life insurance policy you’re arranging. Why? There are three reasons.

Firstly, a Life Insurance policy combined with Critical Illness cover will work out significantly cheaper than buying two separate policies. Secondly, as we have already explained in the footnote to Tip 2, you may be able to buy a combined Life and Critical Illness policy with a guaranteed premium. That could be e real bargain. Finally, premiums for critical illness cover increase rapidly as you get older – so the sooner you take it out, the cheaper it will be.

• Don’t confuse Terminal Illness cover with Critical Illness cover.

There’s world of difference between Terminal Illness and Critical Illness cover so it’s important to understand the difference.

Terminal Illness cover pays out the insured lump sum if a Medical Doctor diagnoses you with an illness from which the Doctor expects you to die within 12 months. Most good life policies automatically include Terminal Illness cover at no extra cost. It’s basically an early, and welcome policy payout.

Insurance involves transferring a risk that you bare onto an insurance company so that you no longer have to worry about the event occurring. While you pay a fee or premium for this, what you get in return is peace of mind. So what is the risk that you are transferring with life insurance? Well, quite simply, it is the financial risk of your own death. It should also be remembered that it is in certain circumstances possible to insure the life of another person such as your husband or wife or an important employee. The life insurance company will then pay out to the named beneficiary once the event occurs and this is usually a family member or business associate of the insured.

The thing that insurance companies will be looking for is insurable interest. It may come as a surprise but in the early days of aviation, there were some clever entrepreneurs who would hang around at airports and buy life insurance policies on the passengers. Since plane crashes were very common, a good proportion of the insured passengers died and the insurance companies were faced with the prospect of paying out vast sums to these men.

This is not the reason insurance was developed and the system was not designed to cope with this kind of speculation. Therefore, the rule developed that you could only insure the life of someone you had a real interest in surviving. There is also the public policy issue that it would be tempting to some people to insure strangers and then make sure they died soon.

The life insurance policy will have two important details defined right at the outset. The first is who is to be paid out under the policy. While this seems obvious, it is important to think carefully about it as unlike in most insurance contracts, the purchaser of the policy is rarely the beneficiary under a life insurance policy.

The second is the amount to be paid out on to occurrence of the event. It must be remembered that this is also subject to the rule of insurable interest and therefore you cannot have a policy on your life for more than your life is reasonably financially worth. Since the premium is partially calculated on the amount of the payout, you will simply be paying for more life insurance than you can receive. Therefore, be honest with how much you earn and how much support your providing to your family so that the premium will be accurately assessed.

Deciding on the wrong life insurance plan might leave a family without financial resources at the worst possible time. Choosing between term and universal life insurance plans can be confusing. Only with some research and planning can a responsible choice be made.

Do You Even Need Life Insurance?

Before deciding between term and universal coverage, consumers need to determine whether or not life insurance is actually needed. When you come right down to it, it’s a matter of money if death would cause a financial burden for the family then life insurance is critical. Financial matters to be considered include funeral costs, college tuition and all outstanding and upcoming debts. For single people without children or dependents, life insurance is really optional.

Once you’ve made the decision to buy life insurance then it’s time to determine which kind of policy is right. This is when you need a reputable life insurance agent, referred to you by someone you trust. The agent can help you deal with the details of the various benefits and costs of multiple policy types.

Term Life

Term life insurance policies are among the most flexible and economical types of life insurance coverage available. These policies are designed for those who want basic coverage for a set time period without a savings account built in. This means that there will be no return on the money paid into the policy over the years.

Premium rates for a term life policy vary with the policy. Policies are usually purchased for 10, 15, 20, 25 or 30-year periods and they may be renewable. Apart from low rates, the variety of term periods is one of the most appealing features. For instance, a couple with a child entering college who want to ensure that tuition will be paid for in the event of their death can purchase a term life policy for just those years. There is no reason to purchase a lifetime policy for a short-term need. Term policies with increasing or decreasing coverage are also available.

A disadvantage of term life policies is the inconsistency of their rates. While premium rates start out very low, they usually rise as policyholder’s age. Also, policyholders who want to renew after the initial term has ended, may find the renewal fees prohibitive.

Universal Life Insurance

Universal life insurance policies will pay any necessary death benefits but also provide policyholders with an additional tax-deferred savings account advantage. Generally, these policies must be held for a minimum of 15 years before resulting in any return from the savings account. They provide policyholders with a stable long-term investment that can be borrowed against or cashed out.

The premium rates and coverage provided by universal life policies remain constant throughout the years. Premium rates tend to be higher than with other policies, largely due to agent commissions but under some plans the rates drop as the policyholder ages and can even disappears altogether. Unless the policy lapses, there are no renewal fees to contend with.

While some financial experts argue that there are better investment options available for educated consumers, many recognize universal life policies as having sound investment benefits.

OK, thinking about your own mortality is not a topic anyone enjoys but our own death is one of the few certainties in life. So why do 35% of Canadians not insure their own life to make sure their family or loved ones are financially protected? While the number of reasons likely match the number of people not insured, the following are the most commonly heard.

Reason #1 – I don’t have a need for life insurance:

Let’s be honest, this reason is by far the most common and for most people untrue. Unless you are an individual who does not have children, has money on hand to cover all debts and funeral expenses and does not feel the need to offset the loss of their income to a spouse, leave any additional money to family, or to a charity, then it may be true, you don’t need life insurance. But few people have the funds readily available to fulfill all their wishes or meet their obligations after their death.

At the very minimum, if you have anyone who relies on your income for their day-to-day needs like a spouse or children or if you have debts like a mortgage then you likely need life insurance.

Reason #2 – Life insurance is too expensive:

If in the past people have found life insurance to be too expensive, it could be because of the type of coverage they were seeking like whole or universal life insurance. Term life insurance is the most affordable of all the products and is very popular because of it.

Term 10 Life insurance is the most popular Term product in Canada nd offers a premium guaranteed not to change for 10 years.

A male non-smoker seeking $100,000 in coverage could be paying as little as*:

1              $125 for a 30 year-old

2              $129 for a 35 year-old

3              $157 for a 40 year-old

4              $207 for a 45 year-old

5              $281 for a 50 year-old

A female non-smoker seeking $100,000 in coverage could be paying as little as*:

6              $106 for a 30 year-old

7              $112 for a 35 year-old

8              $133 for a 40 year-old

9              $163 for a 45 year-old

10           $219 for a 50 year-old

As you can see, for very little money a year, you can get $100,000 in life insurance coverage.

* Lowest quote online from October 2005 for a Term 10 policy, one of the most popular life insurance products in Canada. Premiums shown are the rates if paid annually.

Reason #3 – I don’t know anything about life insurance and don’t know where to start:

A number of free online tools have been developed to help you decide which term life insurance product is best for your specific situation and how much life insurance coverage you should get.

1              Term Life Insurance Analyzers. By answering a few simple questions, these tools will assess your needs and let you know what product is most commonly recommended for people with similar lifestyles.

2              Term Life Insurance Calculators. These tools will help you put a dollar value on the amount of coverage you need in order to ensure that your family, loved ones and your debts are covered in the event of your death.

Reason #4 – Life insurance is a hassle to get:

Thanks to the Internet, getting term life insurance quotes is now fast and easy. If you want to shop around first, getting quotes online means you can avoid hard-sell tactics by someone sitting across from you. There is no sales pressure or obligation to buy when you get life insurance quotes online. It’s easy, can be done any time at your convenience and is simply a better way to shop for life insurance because of it.

The very best time to arrange life insurance is when it’s furthest from your thoughts. Take a typical young man. He’s at the start of his career, possibly still living at home but thinking of looking around for a flat. He has a car and the insurance that he arranged for it was probably his first step in the insurance ladder.

If he decided to take out some life insurance whilst he’s still young, fit and healthy, he’d get the best possible rates. Probably the most valuable insurance at this stage is Critical Illness (CI) cover.

Whilst life insurance is designed to pay out to your beneficiaries if you die, CI cover will give you valuable support if you become critically ill. For our young man, starting on his career, an illness of this type could be a financial disaster. It is a fact that one in three people will develop cancer at some time in their lives but the good news is that treatment and cure rates are improving all the time.

Advances in medical science thankfully mean that more and more people will survive many of the major serious illnesses. Unfortunately, this recovery can take many months or even years and necessitate long period of time off work. It may not be possible to carry on with the same work meaning, a change of career. In some cases it may be necessary to change your home and car.

Without CI cover, he’d probably find that his company would pay his salary for around three months and after that, he’d have to rely on incapacity benefit. For those on contract work and the self-employed, the situation is even worse. CI insurance will pay out a lump sum to cover your expenses and leave you to concentrate on your treatment and recovery.

There’s a very wide range of CI policies available. All will cover what are known as “Core Conditions”, which are Cancer, Stroke, Heart Attack, Coronary by-pass surgery, Kidney failure, Major organ transplant and Multiple sclerosis. Some will cover up to 30 additional conditions.

At the time of purchase of the policy, the medical conditions for which you would be covered should be fully listed. Go through this carefully and make sure that you understand any exclusion within the life insurance cover.

It is essential to fill in the application form very carefully. If you fail to disclose a previous illness or condition then you may find that the insurers will refuse to pay out. Our typical young man should be fine here as long as he makes sure that he discloses all illnesses, no matter how minor they seemed at the time. The older you get, the more conditions and illnesses there are to remember and the greater chance you’ll forget something which you thought was trivial.

Having got CI cover sorted, this would be an excellent time for our young man to arrange some simple life insurance. Simple life insurance is reasonably priced and offers important cover. A term insurance policy will run for a set number of years. If the policyholder should die during this period, a lump sum would be paid to his dependants. Even if there are no dependants when the young man first takes this cover out, there may be loans and other debts and maybe some fairly “light” cover for a limited term would be a good step to take. It can be topped up as circumstances change. Certainly, his insurance will never be cheaper when it comes to insurance; it’s a case of the younger the better.

Our smart young man doesn’t even have to waste his valuable time chasing up insurance. A quick visit to an on-line broker will give him all the advice he needs and the very best of life insurance quotes with on-line discounts too.