This type of protection typically provides a tax-free lump sum that will be paid to whoever you choose should the worst happen to you. There are four main types of cover:

This provides cover for a selected amount of time. For people expecting children to move out after a certain amount of time, or until a mortgage has been paid off, this kind of cover could be beneficial as your loved ones will receive a lump sum if the worst should happen within that period of time.

Term Assurance is Life insurance in its cheapest form. The sum assured under the policy is only paid out if death occurs within the specified term of the policy. If the life assured survives until the end of term, the policy will expire and there will be no monies payable. There are several types of Term Assurance:

This type of cover provides a lump sum no matter when you die. If the amount your loved ones receive does not rise in line with inflation, the value of the lump sum may be reduced in real terms when they receive it.

An increasing term life assurance policy will provide your loved ones with a lump sum payment if you die. The difference with this kind of policy is that, over time, the amount paid to them will change. As the name suggests, the amount increases over time with an increasing term life assurance. The opposite is true with a decreasing term policy, in which your family will receive a reduced sum the later they receive it. A decreasing policy may be chosen to reduce cover in line with a mortgage policy to reflect the reduction in money owed to the lender over time.

Where the value of the sum assured is linked to increases in an index-usually the Retail Prices Index (RPI) The premium for this kind of policy will usually increase at a set amount.

Instead of a lump sum being paid to your family when you die, this type of cover provides a regular income for a fixed period of time.

Whilst taking out cover is likely to be a sensible decision, care needs to be taken to ensure it is done properly because if it’s not set up in the right way, when your loved ones receive a lump sum from your life cover, it may become liable to Inheritance Tax.

As IHT is typically charged at 40%, this could significantly reduce the amount your beneficiaries receive, which may jeopardise their financial security. One way you can protect your life cover from an IHT liability is to place it in a trust.

Not only could this mean the payment sidesteps IHT, but it could also help ensure your loved ones receive it more quickly. You don’t need probate to be granted in order for the policy to pay out.

Income protection could help you to maintain your standard of living if you’re off work for an extended period of time due to a serious illness or you are injured. It pays a tax-free amount portion of your earnings every month if you’re unable to work, which could help you to meet your financial commitments, such as your mortgage repayment.

Critical illness cover (CIC) pays a tax-free lump sum if you’re diagnosed with a serious illness. The illnesses you would be covered for depend on the protection policy you take out, for example it can cover cancer, a heart attack or a stroke. The money you receive can be used for a variety of reasons, for example to pay for treatment (which could include medication not available on the NHS), repay debts, which may help to reduce your monthly outgoings while you cannot work, modify your home if necessary or generate an income whilst you’re off work. This could mean that you don’t have to rush back to work due to financial pressure before you’re fully recovered.

Having CIC means that you can rest easy that you will be better placed to maintain your lifestyle no matter what happens.

You can arrange for your cover to be for a specified time, up until you return to work, or when you retire. You can typically defer payment of the protection plan, and the longer you defer it for, the less you’ll usually pay.

Depending on your circumstances, CIC may be cheaper than you think, although the cost will depend on several factors including your health, your age, your occupation and the income you require.

The definition of critical illness, and the conditions covered, will vary greatly depending on the policy. It’s important to understand exactly what a policy covers, as some may not offer a pay-out unless the illness is particularly severe or results in permanent impairment or disability and some insurers may pay out a lump sum on a severity basis.

However, not all diagnoses will be included. For example, some policies will not include certain types of cancer as they are considered to be easily treatable. Our independent financial advisers can explore all of your options for you, searching the whole of the market to find the policy that’s right for your specific needs and requirements, giving you peace of mind the policy you want is the policy you are getting.

This is an extra benefit provided by some critical illness policies and covers any condition which results in total and permanent disability, even if the condition is not specified elsewhere in the policy. The definition of disability may depend on your occupation and could include any injury or diagnosis that prevents you from carrying out your work permanently. Your adviser is on hand to discuss this with you in more detail.

Critical illness cover is likely to be cheaper if it’s purchased alongside life insurance. The important thing to consider here is that, with some policies, there will only be one pay-out, so if you claim for a critical illness, there will not be another pay-out on death.

Our advisers are happy to guide you through the process, and help find the right cover options for you. We appreciate there is not a one size fits all approach and we can work with you to balance the cost of premiums against the amount the cover you need or want.

Please note: whichever type of cover you decide on, you will not normally get cover for pre-existing conditions or the policy premiums may increase based on past medical health conditions.