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23 Oct 2014

Life Insurance Advice
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Pension Term Assurance

PENSION TERM ASSURANCE CHANGES

Tax relief will no longer be available for all contributions made on or after 1 August 2007 under occupational pension schemes in respect of PTA policies, unless the insurer received the policy application before 29 March 2007 and the policy was taken out before 1 August 2007.

As far as any other pension scheme is concerned, tax relief will no longer be available for contributions made on or after 6 April 2007 in respect of PTA policies, unless the insurer received the policy application before 14 December 2006 and the policy was taken out before 6 April 2007.

Tax relief on premiums for policies that continue to qualify will be stopped if the policy is varied to increase the sum assured or extend the term, unless the variation is as a result of the exercise of an option within the policy.

Pension Term Insurance

Pension term Assurance ( PTA ) is standard term life insurance but with premiums that attract tax relief so the net cost should be cheaper.

A Pension Term Assurance ( PTA ) can be set up as either a level term insurance or decreasing term life insurance policy with tax relief on the premiums. However if you are looking for a policy that combines critical illness protection then a pension term assurance might not be right for you as you cannot add these types of benefit to a pension term assurance policy.

Anyone under the age of 75 may contribute to a pension term assurance policy without taking out a pension plan.

It covers you for a fixed period and pays out a one off lump sum if you die during the policy term.

Pension Term Insurance Pros and Cons

Pros

  • Tax relief on premiums is given at person’s highest rate of tax.
  • If you want to leave a cash sum to your family's or to pay off a mortgage after you've gone, Pension term assurance may be right for you.
  • It's one of the most affordable type of life insurance.

Cons

  • Uses up a proportion of persons tax allowance for personal pension planning. This is may be an issue for those able to make maximum pension contributions.
  • It is possible that the sum assured payable from a Pension Term assurance plan could impact on the lifetime allowance, or on any ‘Protected’ benefits’.
  • As there are fewer life assurance providers for this type of cover, premiums often are not as competitive as term life assurance.
  • The policy can not have critical illness protection added as a benefit

The rules regarding pension term assurance changed on 6th April 2006.

Premiums are allowable against taxable income, subject to the following limits

  • Up to 100% of Taxable income, to a maximum of £215 000 (2006/07)
  • There is a limit of £3 600, as with personal pensions.
  • The Sum assured counts against the individuals Lifetime Allowance, which is currently £1 500 000. Benefits in excess of this figure could be subject to 55% tax.

Pension Term Insurance Explained

Pension Term Assurance pays a lump sum in the event of death within a specified period of your choice (known as the 'term'). Premiums are normally paid monthly though some policies allow annual pay.

There is no investment element with this form of life insurance, as such if no claim has been made there is no maturity value payable at the end of the term.

Pension Term Assurance is the cheapest and simplest form of life insurance. You are covered for as long as you pay the monthly premiums. If you stop paying the premiums, the policy stops.

Different types of pension term assurance are available:

Level Term assurance  

  • lump sum is payable on the event of death. This lump sum remains constant throughout the period of the life insurance term.

Decreasing

  • a lump sum is payable on the event of death. This lump sum decreases by a fixed amount during the period of the term, decreasing to nil by the end of the insured period. This form of cover is usually used for mortgages or other loans where the amount owed decreases year on year.

Information regards taxation levels and basis of reliefs are dependent on current legislation, individual circumstances are not guaranteed and may be subject to change.

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