Despite being a topic most of us would rather avoid talking about, it is important to plan ahead to protect your dependents in case something happens to you.
Unlike ‘permies’, who may have a life cover scheme provided by their employer, contractors are responsible for arranging all of their financial affairs on their own. This includes putting plans in place to look after your family should you die.
The two main types of life cover insurance are ‘Term Cover’ and ‘Whole of Life Cover’.
What is Term Cover?
This type of insurance will cover you for a specified period and will expire at the end of the agreed term. This is typically an inexpensive type of policy.
What is Whole of Life Cover?
A slightly more expensive alternative to ‘Term Cover’, a Whole of Life plan will cover you in the event of your death at any age.
There are several ways to choose the best life cover plan for your personal circumstances:
Level Term Assurance
This type of plan will provide your dependants with a fixed lump sum. The value of the lump sum will be affected by outside factors such as interest rates and the effect of inflation.
Decreasing Term Assurance
This type of plan will pay a reducing sum to your dependants, depending on when death occurs. The sums involved are often linked to the outstanding capital left on a repayment mortgage.
Family Income Benefit
This type of plan will provide the beneficiaries with a set amount of income over a pre-specified term, to help fund monthly expenditure.
The total income your dependants will receive will vary according to the amount of time you are into the policy term.
If you want your family to receive a lump sum which is not dependent on when the claim is made, then a Level Term Assurance plan may be more appropriate. Your IFA will be able to help you with your options.
Whole of Life policies
This type of plan is useful if you don’t want to specify a term (end-date) and can be linked to investments to help manage the cost of investments.
You will find that the costs of Whole of Life policies are lower if you take out a policy early on. An investment plan will enable you to cash in on your policy before you die. You should be aware that investment plans can fluctuate according to outside factors during the life of the policy.
Save tax with a Relevant Life policy
A very popular way for contractors to take out life cover is via a relevant life policy, which is paid for by your limited company, not out of post-taxed personal income.
Get a Relevant Life Cover Quote
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