The best type of protection contract and basis of cover to protect a joint life mortgage is decreasing term assurance on a joint life first death basis.
Life assurance cover provided by an employer is usually part of a pension scheme and can be up to £1.25m in 2014/15.
Life Assurance Premiums
The level premium system replaced the natural premium system so as to form a reserve of funds to cover the greater risk of claims in the later years of the policy.
The major loading on a net premium is to cover the expenses of the life office including such things as: medical fees during underwriting, costs of office buildings, commission paid to sellers of the policies and salaries of employees.
It is normal to add a policy charge to the loaded premium to arrive at the final premium. This policy charge is a handling fee.
Life Assurance Multiplans
Life assurance Multiplans can be called Universal Life Plans and have these features: lower charges; less overlap of cover; greater flexibility than single contracts; can include general insurance as well as long-term insurance, eg unemployment insurance underwritten by a general insurer.
Life Assurance Trusts
The owner of an existing life policy can put it in trust by assigning it to trustees using a Deed Of Assignment. The advantages of using trusts for life policies are:
- The beneficiaries receive the proceeds without having to wait for probate to be granted.
- Payments paid into the trust (the premiums paid into the policy) could be Potentially Exempt Transfers (PETs).
- The proceeds may not be subject to IHT.
- A trust can make certain that benefits are distributed according to the settlor’s wishes.
- There is better protection against creditors if the settlor goes bankrupt.
- Settlers can ensure the proceeds go to the right beneficiaries outside their will.
For the claim of a life assurance in trust, the life office must get the discharge of the trustees because they are the legal owners. They will require:
- deeds of appointment
- details of trustees who have retired
- all trustees to sign the discharge
- death certificates for any trustees that have died
Large Sums In Discretionary Trusts
Each discretionary trust has its own nil rate band for IHT purposes so, where large sums are concerned, it may be more appropriate to consider writing a number of smaller policies. The provisos are that each policy is put into trust on a different day and each policy is not connected or related.
The settlor in a Flexible Trust determines a list of potential beneficiaries and nominates one or more to have an interest in possession. Changes to trust law in 2006 meant that the IHT treatment of new flexible trusts was the same as Discretionary trusts and meant that assets put into trust are treated as chargeable transfers and the trust could be subject to a periodic charge every 10 years based on its value.
Life Assurance Moratorium Underwriting
Larger schemes may have little or no individual underwriting.
Some short term schemes may apply a moratorium rather than full medical underwriting and a typical moratorium excludes pre-existing conditions for the past five years for two years; might exclude all pre-existing conditions; excludes pre-existing conditions for two years after any treatment or check-up during the moratorium period.
Full underwriting that leads to a higher premium being charged for higher risks is most usually found in long term policies.
The Consumer Insurance (Disclosure and Representations) Act 2012 puts the onus on insurers to ask clear questions to obtain full disclosure from consumers.
Life Assurance Assignments
An ‘Assignment by way of mortgage’ is different to an ‘Absolute assignment’ because:
- An absolute assignment is the complete transfer of the policy by way of a sale or gift.
- The lender must reassign the asset to the borrower on full repayment of the loan.
- The borrower retains an interest in the mortgaged property called an equity of redemption.
Documents Of Title
It is the claimant’s duty to prove title and they must produce all the documents to prove their ownership. These are called the ‘Documents of title’ and include:
- payment of all due premiums.
- proof of title – the onus is on the claimant.
- proof of death on a death claim.
- production of the policy.
- proof of age on a death claim
There are two types of claims: maturity and death. For maturity claims such as an endowment, the life office’s form of discharge must be signed by the person with the legal title to the policy.
Proof of title
Proof of title will be required for a death claim on an unassigned own life policy using Grant Of Probate where a valid will naming executors was left and Grant Of Letters Of Administration where no valid will was left.
Life Assurance Surrender Values
A surrender value is generally treated the same was as a claim and the FCA requires life offices to make sure that endowment policyholders who seek information on surrender values are told of other options. These include selling the policy on the open market and making the policy ‘paid up’ (which is only possible where the policy has an underlying value and is not, therefore, a pure protection policy such as term assurance, critical illness, etc.
Claims Using Proof of Age
Proof of age is needed when making a claim to verify that the life assured’s date of birth was correctly stated on the proposal as the premiums are based on their age. An official birth certificate can be used. For married women, the marriage certificate will also have to be produced to link the name on the birth certificate with the current name.
If there is a discrepancy with the life assured’s age then the relevant adjustments that would be in line with the correct premiums may be made by the life office.