Whole-life Assurance

Whole-life assurance is an agreement whereby the 'life office', as the insurance company is often called, undertakes to pay a predetermined sum of money called 'the sum assured' when you die. Premiums are usually payable throughout life, but they can be arranged to cease at age 60 or 65, in which case the annual premium would be a little higher. The life office knows from its records the average age at which people currently of your age die, and is almost making a bet with you that you will not meet with a premature end.

The purpose of whole-life assurance is to set up a fund for use on your death whether that occurs sooner or later. It is thus a convenient way of making provision for the widow of a man whose pension arrangements do not include widow's benefits. It can also be used for setting up a fund for paying capital transfer tax on the death of a fairly wealthy person, thus protecting the value of the inheritance. You yourself can never enjoy the benefits of whole-life assurance.

Term assurance

Purely as a protection for one's wife and family in the event of the premature death of the breadwinner, the cheapest kind of life assurance is what is called 'term cover'. The word 'term' simply signifies that the assurance lasts only for the duration of the selected term of years. It is much cheaper than whole-life assurance because you are much less likely to die during any stated number of years than you are to die some time.

A 30-year-old man can insure his life for £25,000 over a term of 20 years (long enough for the children to grow up) for around £4 gross per month.

Income benefit

A variation of term cover is insurance that will pay your dependants on your death an annual income for the remaining years of the chosen term, instead of paying a single lump sum. A Family Income Policy over 20 years to provide an income of £30,000 a year in the event of your death during that term would cost a 30-year old about £30 gross per month.

• Life Assurance
• Small Businesses