Level Term Assurance Cost Cutting/MoneySavingExpert.com Discussion

Former_MSE_Archna

This thread relates to the article Level Term Assurance Cost Cutting.

See old thread here.

Click reply to discuss.

dunstonh

May as start by saying that it looks likely that Level Term Assurance for pure protection is likely to become the minority product from next April when Pension Term Assurance is likely to take over as the majority product.

At this time, discussions are taking place to make the pension term assurance product come under protection advice rules and not investment advice rules as it currently is.

So, if you are looking to rebroke your existing life cover, you may want to wait until next April before you do it. Do it now and you will almost certainly be doing it again next year to get the tax relief.

starkj

Nit picking, I think this should be called insurance not assurance.

Death is guaranteed but not in the term purchased.

duncshep

In reply to the nit picking thats why its called assurance, it might happen and as Martin says in his mini rant he (and I)hope it never happens to you.
Also consider Family Income Benefit which is similar to Decreasing Term Assurance. You pick an amount that is needed per annum, say £25,000 then multiply by the years you wish to cover, say 20. This gives £500,000 cover over the period reducing over time, useful as the requirement reduces as the kids get older. Usually sold with a term Assurance.
Duncshep IFA

dunstonh

Also consider Family Income Benefit which is similar to Decreasing Term Assurance.

FIB is usually poor value for money though nowadays. It shouldnt be but the pricing of Level Term and the forthcoming re-introduction of Pension Term (to the mainstream) make those better. Plus I recall seeing stats some years back that the majority of FIBs paid out a reduced lump sum rather than income as the beneficiaries usually preferred the lump sum.

oceanblue_3

"FIB is usually poor value for money though nowadays."

I would agree with this in most cases; however, smokers' rates for FIB seem to me to be very good value for money. I've arranged several recently (mainly with L&G) and the "comparative premiums" have been less than half those quoted for level term.
The commutation option is always attractive, but needs to be weighed against the tax-free monthly income option.

dunstonh

Cheers OB, I will take a look at that next time when I have someone in that situation.

eilz

Sorry guys, I am trying to make sense of Pension April change and whats is FIB. Are you saying that Assurance is not worth getting or wiating for, and why? please explain in in simple terms. Thanks

dunstonh

Sorry guys, I am trying to make sense of Pension April change

There are protection products called pension term assurance and Additional voluntary contributions pension term assurance. They are basically level term assurance policies that qualify for tax relief on the premiums at your highest rate.

They used to be quite popular until 2001 when a rule change made them virtually impossible to sell because the limits were made so small. In turn, providers stopped offering the product as it wasnt cost effective. However, those people that already had a pension term assurance, could keep it (even if they didnt meet the new rules).

From April 2006, the pension rules are changing and you will be able to pay upto 100% of your earnings into a pension and get tax relief. That will include pension term assurance. So with the limits removed, the product is expected to be relaunched by the providers.

So, if a level term assurance costs £20pm for x amount, the pension term assurance will cost around £21pm (always used to be a little more expensive to cover cost of tax relief). However, you will get 22% (or 40% if higher rate taxpayer) tax relief meaning the direct debit will be £16.38.

Currently, pension term assurance can only be sold by investment regulated advisors and cannot be sold by protection only advisors. However, the FSA is in discussions at present to make pension term assurance available to protection advisors in addition to investment advisors which means you should expect to see it appear via IFAs, protection advisors and tied agents.

Are you saying that Assurance is not worth getting or wiating for, and why?

No. You shouldnt put off purchasing life cover. What happens if you die between now and April? However, if you are re-broking your life cover, you should be aware that you are quite possibly going to rebroker it again after April.

You should also be aware that you can not have critical illness cover bolted onto a pension term assurance. You would need a stand alone CI policy if you wanted CI cover in addition to the pension term assurance. It is possible that providers will package the two products when the time comes.

whats is FIB

Family Income Benefit. You set it up similar to a term assurance but instead of there being a lump sum benefit paid on death, it pays out a monthly income until the term end.

Again, used to be fairly widespread but the number of providers offering it has reduced due to the competitive premiums on level term assurance.
Pros:
Cheaper than level term assurance (it should be on paper but as said above it doesnt always happen in real world but there are still cases where it does).
Will pay out a higher amount on death in early years than a level term assurance around the same premium.
Pays it as an income and after all, its usually an income that needs replacing.

Cons
Will pay out less than a level term assurance if death occurs later in the term.
Statistics showed that on death, most people opted to convert the income to lump sum and take a reduced amount.

eilz

Maniac

Ok, but what if you already have a Life Assurance policy, and one that has some kind of cash back or rather able to cash it in at a later time (i think). If after 2006 APRIL I wanted to change to the pension tax relief scheme, would I have to stop my current Life Assurnace, and if I do this won't I lose everything I had paid in, maybe getting a ver small % of money in return. Wouln't I be better off sticking to what I have, unless I can take it over to the pension based scheme in April 2006 (sorry if I am not making too much sense)

dunstonh

Ok, but what if you already have a Life Assurance policy, and one that has some kind of cash back or rather able to cash it in at a later time (i think).

You would be referring to an endowment policy which is a totally different type of policy.

Wouln't I be better off sticking to what I have, unless I can take it over to the pension based scheme in April 2006 (sorry if I am not making too much sense)

You cant "take it over" to the pension based scheme. It would have to be a new plan commenced under the new rules.

An endowment policy would cost a lot more than a term assurance (of any type) and has a different maturity process. Basically we would be comparing apples and oranges. Both fruit but different. In this case, both life policies but different.

I certainly wouldnt recommended or suggest surrender or cancel of an endowment policy in favour of a term assurance without knowing the details of the existing policy first. Being a regulated product, that couldnt be done here either. Your best bet is to look at it in April and see an IFA at that time (not a protection advisor as they will not be of any help to you).