What is Life Insurance?

Life insurance is a policy that you can take out to pay a lump sum in the event of your death or diagnosis of a terminal illness. The lump sum or cover amount will be paid out to your next of kin, family or a named person. This may be liable to inheritance tax if not placed in trust, but is free from income and capital gains tax.

In the event of a terminal illness an insurer will bring forward the payment of the sum assured to allow you to address any financial needs prior to your impending death. The definition of a terminal illness is that you have less than 12 months to live. When asked, ‘what is life insurance?’ the response is normally straight forward. The plan is designed to meet an individual’s financial concerns or needs at a time when they are no longer alive. This will ensure that the dependents or outstanding financial liabilities are protected. For most people this will be the provision of a cash sum to repay an outstanding mortgage. However, there are a sizeable number of applicants who are looking to provide a cash lump sum or income for dependent children. Should premature death occur most people would like to pass on the assets of their estate unencumbered that is without the restraints of having to sell assets to clear an outstanding liability. This will ensure that an estate is passed on intact. With regards to protecting dependent children most people have life insurance so that the hopes and dreams that they have for their children can be fulfilled even if they are not around.