Opting For the Certainty of Life Assurance

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When life insurance companies offer life assurance, they are seeking to provide a financial product that is clearly distinctive from the service that gives the sector its name. Under a life assurance policy, there is a contract between the company and the policy holder that allows for a cash payment to be made after the death of the individual concerned, although the payment can also be triggered by terminal illness or a similar catastrophic life event.

However, the basic principle remains: that the policy's payout is based upon a definite and inevitable occurrence, rather than a risk, as in the case of life insurance. In order for this inevitability to be financially viable for the company involved, regular sums, known as premiums, need to be paid into the policy.

As the payout occurs upon the death of the policy holder, the beneficiaries are clearly not going to be the policy holder themselves. Instead, life assurance requires the naming of designated beneficiaries.

The standard length of time for a fixed-sum premium is 10 years, after which it is reviewed by the insurance company. At this stage, the company will rule as to whether there has been sufficient growth in the fund to enable the final sum to be paid out. If the investment fund is insufficient, then the company will raise the premium itself or reduce the amount of the eventual payout.

The most common situations for a life assurance policy to be taken out is at times when an individual wants to be sure that their spouse, children or other dependents will be in a stable financial position after that individual's death. This also demonstrates the other major difference with standard life insurance, where policies are usually taken out when there is a severe risk to life or well-being.

The financial burdens which a policy is meant to alleviate therefore include the costs of repaying a mortgage, a salary which provides a primary household income, childcare, health and education costs.

However, there are limits to the circumstances under which a life assurance policy is able to be taken out. This is to make sure that there can be no financial reward for a suicide or for fraudsters. Policies are also null and void in the case of major societal upheavals, such as wars and civil disturbances.

There are few tax breaks for holders of life assurance in the UK. For instance, there is no writing off the costs of a policy against corporation or income tax. However, policy-holders whose life assurance was drawn up before March 14th 1984 are entitled to 15 per cent Life Assurance Premium Relief or LAPR.

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