Life assurance products can be broken down into two separate categories, protection and investment, although the investment contracts will contain at least an element of protection and some protection contracts may well contain an element of investment. Life insurance companies can also be broken down into two groups, mutual and proprietary. Mutual offices are owned by their “with profits” policyholders, who are allocated the profits, while proprietary companies are owned by the shareholders. Mutual companies are gradually disappearing because of their inability to compete with proprietary companies in the modern day market.

Investment contracts can either be with profits or unit linked. Traditionally all policyholders shared in the with profits fund which ensures a relatively even pay out to policyholders year after year. In the 1960’s however unit linked policies were introduced and here the return to investors is likely to be more volatile as the market increases or decreases the value of units held, but the overall return in the longer term potentially greater.

Term Assurance

Term assurance policies will ensure against something happening within a given period of time, known as the term, and will pay out either an income or a pre-determined capital amount should the specified event occur during the term of the policy. Term policies are relatively inexpensive but premiums will be determined by the life insured age and medical condition, whether he or she is in a hazardous occupation and whether he or she smokes.

Policies can be written on the life of an individual or on the lives of husband and wives. It is also possible to take out insurance on the life of others and this is especially popular when looking at business insurance, in order to protect against the loss of key individuals.

If no death occurs during the term then the policies simply lapse, with no value.

Family Income Protection

These policies provide an income e.g. in the event of the death of a parent. These policies are designed to allow for the employment of a nanny or a helper to look after the children while the surviving parent is out at work, or provide an income should it be the principle breadwinner who dies. Policies will provide cover against death during a fixed term and will cease at the end of the term without value.

Decreasing Term Assurance

These policies are designed to provide for the repayment of any outstanding loan, normally a repayment mortgage. The payout is likely to be made upon the death of one of the mortgagors. These policies do not usually have a surrender value and once the policy has expired it will have no residual value.

Convertible Term Assurance

These policies are designed to provide basic term assurance protection at outset with the option of converting to other types of policy as circumstances change in later years. There are likely to be restrictions as to the type of policy to which it can be converted and when conversion may take place. Conversion however can normally take place without any additional medical examination.

Whole Of Life Policies

These policies provide a number of options depending upon the circumstances required. They can have a small sum assured with a high element of regular investment, they can have a high sum assured with a relatively small contribution to investment or they can be balanced in order that both protection and investment is provided. They can also be used to include the addition of benefits such as critical illness and because they have no policy term they are extremely popular in assisting with potential inheritance tax liabilities. Depending upon the initial contract terms, surrender of the policy could provide a significant investment return.

Mortgage Payment Protection Policies

These are designed to ensure against being unable to continue mortgage payments due to sickness, accident, unemployment or redundancy. Upon the insured event taking place, the policy will meet the payment to not only the lender but also related life assurance contracts. These types of policies are becoming increasingly important not only because the assistance provided by the State is being cut back but also as a result of the more flexible employment market. However, the amount paid out at claim time is usually restricted to either one or two years of value.