Life Insurance pays out a cash sum if you die during the length of the policy. There are two main types of life insurance; ‘decreasing life insurance’ and ‘term assurance’.
This is designed to help protect you and your family from some of the financial worries they could face if you were to die. Term assurance runs for a set period of time. If you are diagnosed with a terminal illness, some plans will allow you to receive this payment immediately rather than being paid out on death.
Decreasing Life Assurance
This provides cover for a mortgage or loan. The cover decreases in line with the mortgage.
Critical Illness Cover
This is a form of insurance that provides a lump sum payment or a regular income if you have a serious illness or condition that is covered under the policy’s terms. Most critical illness cover is provided as an optional extra to a life insurance policy.
Income Protection (Permanent Health Insurance)
This offers a regular income, should you be unable to work for a prolonged period of time due to sickness or injury. There is no payment on death. The payments normally commence after a deferred period and cover a proportion of your income until you can return to work or reach retirement. The benefit payable will normally be no greater than 75% of earnings in the year preceding the disability. This is to encourage people to return to work.
Business Protection (Key Man Insurance)
This is essentially a form of life insurance for businesses. It is generally taken out by a business to compensate for any financial losses that would arise from the death or extended incapacity of the key individual(s) of the business.
The policy does not cover actual losses incurred, but instead compensates with a fixed monetary sum as specified on the policy itself.
There are generally three categories of loss for which Key Man Insurance can provide compensation:
- Protect losses related to the extended period when a key person is unable to work; to provide temporary personnel; and, if necessary to finance the recruitment and training of a replacement.
- Protect profits such as offsetting lost income from lost sales; or losses resulting from the delay or cancellation of any business project that the key person was involved in; or loss of opportunity to expand, loss of specialised skills or knowledge.
- Protect anyone involved in guaranteeing businesses loans or banking facilities. The value of insurance cover is arranged to equal the value of the guarantee given by the key person.
As a result, a Key Man can be anyone directly associated with the business whose loss can cause financial strain to the business. For example, they could be a Director of a company, a Partner, key sales people, key project managers and people with specific skills or knowledge which is especially valuable to the company.