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Protection

Protection generally refers to insurance policies that can be taken out with a life assurance company to cover a person financially should they die, suffer a serious or critical illness or be prevented from working due to accident or sickness.

Obviously in the event of death the person owning the insurance policy will not be there to use the proceeds of this type of policy but money can be added into their estate for the benefit of their families or loved ones.

There are a range of policies that a person can take out in order to have peace of mind that in the event of something happening out of their control that they and their families will be financially covered through the possession of an insurance policy.

The three most common types are:

In brief, the life assurance policy is designed to pay out a specific lump sum in the event of death of the policyholder if the death occurs within a specific timeframe. A critical illness policy is designed to pay out a lump sum to the policyholder in the event that they suffer a critical illness during a specific timeframe. Income protection cover is designed to pay out a regular sum of money to the policyholder in the event that they are unable to work due to accident or sickness. Generally, policies are paid for with monthly premiums and the older the person wanting the policy, the more expensive it is likely to be as the risk of something happening to the policyholder is increased. If the applicant is a smoker, has had previous medical conditions or they have a hazardous occupation or pastime, then this also is likely to increase the cost of the insurance policy. Different life assurance companies offer different prices and conditions to their policies. Some companies offer a combination of these policies with a discount for taking out a number of these options so financial advisers should shop around on your behalf to get the most suitable product for you.

When taking out a mortgage for example, financial advisers are likely to recommend that the person takes out a life assurance or critical illness policy so that in the event of death or critical illness the proceeds from the insurance policy will pay off the remaining balance of the mortgage. This should be tailored to the needs of the individual. If they are paying their mortgage off by the repayment method, then they will need a life assurance policy where the benefit reduces along with the outstanding balance of the mortgage and has the same term of the mortgage. As the cover amount reduces over the term of the mortgage, this would also generally be cheaper than buying a policy where the cover stays the same throughout the term of the mortgage, which would be necessary for an interest-only mortgage.

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