However, the self-employed and those in non-pensionable employment have been given the ability to provide for themselves through a special concession, and can make reasonable provision if they use the life insurance plans available. The main points can be found below:

• 1. Self-employed people (or those who are in employ­ment which is not pensionable) may devote 15% of their net relevant earnings (see below) or £3,000 a year, whichever is the lower, to contributions to a personal pension plan. Those born before 1916 are allowed higher limits so long as they are not entitled to a preserved pension from a previous job. The limits vary from 18% of relevant earnings (or £3,600 per annum if less) for a person born in 1914 or 1915 to 30% (or £6,000) for those born before 1908.
• 2. Contributions are eligible for tax relief not at the level of life insurance premiums but at full marginal tax rates (excluding investment income surcharge).
• 3. The funds in which contributions are invested are free from income tax and capital gains tax.
• 4. A pension may be drawn at retirement at any age between 60 and 75 (earlier if retirement is due to disability or illness or if early retirement is usual in a particular occupation).
• 5. The pension is taxable as earned income.
• 6. A substantial part of the pension may be taken as a tax-free lump sum.

A late amendment to the Finance Act 1978 has introduced a valuable benefit for holders of self-employed annuity policies. Up to now, except in connection with special schemes administered by trustees.

To some extent, it can be argued, the above distinction is academic, since few funds show such consistency. In practical terms, the important thing is to avoid funds that have done consistently worse than the average achieved by their competitors and those that are more risky. In the latter category come most “specialised” unit trusts, for example those investing overseas or in only one sector of the stock market. And there is also a good deal to be said for sticking to the larger unit-linked life offices and unit trust groups which have the most experience in the business.

Skilful investment management may add 1-2% p.a. to the performance of a fund (which would be good going by historical standards). Much of any such advantage could, however, be eaten up by extra fund charges, and so the level of charges embodied in any unit-linked contract deserves careful study. Unlike conventional offices, unit­ linked offices display these charges for all to see, though their effect on the investment may be less easy to calculate than at first sight appears. Life insurance can as well be a complicated subject to deal with.

Actuaries have taken the view that they have to be cautious in making assumptions about interest rates which have effect over such long periods. So in 1960 premiums could have been based on an assumed net interest rate of 3-4%. The actual interest earned has been well in excess of this but the non-profit policyholder has not benefitted.

The decrease in mortality between 1949 and 1970 has been such as to give a valid explanation for a reduction in premiums on non-profit whole-life insurance policies of up to 20% for younger ages. Again, the life insurance policyholder has received no benefit from this, since his premium was set at the old rates and cannot be adjusted. In practice, what has happened is that, as interest rates have risen and mortality improved, companies have lowered their premium rates on non-profit life insurance policies, while existing policyholders have been locked into the higher rates they had originally contracted to pay and have therefore received a very poor return on their money. The modern tendency, therefore, is to purchase protection on a shorter-term basis through term assurance and FIB.

In theory, this will prove more expensive overall, but then this also accords with the trend of income since the young man has little to spare, and therefore wants the cheapest life insurance protection. At middle age he has surplus income and may not mind too much if his life insurance is costing him a lot more than it would have if he had taken it out 10 years previously when he could not afford it will show that for the younger man the saving with term assurance is substantial.

Although the majority of policies are taken where they pay a lump sum family income benefit can be a good alternative.

Gift inter vivos is a completly different part to life insurance altogether. Its main aim is to help cover a possbile inheritance tax laibility during the 7 year period following a gift being made that is classified under the inheritance tax rules. The actual amount of the cover would reduce similarly to a decreasing life insurance plan over a 7 year term.

Both of these are a little known type of policies available on the market.

You can take life insurance for a period of 20 years. Sometimes, certain life insurance companies would request increasing premium payments, which mean that as you grow older your premium rates will rise.  On the other hand, some life insurance schemes will carry constant premium rates as long as the policy remains alive. That is, you will pay a fixed sum of money as premium every month or year until the cessation of the life insurance policy. Besides, you can as well buy a term life insurance policy. As its name says, term life insurance policy can be taken out for a set period of time.

Term life insurance policy is mostly suitable for young adults, especially on the verge of forming a new family. It is its cheap cost that most probably encourages people to buy it. Though tagged at low price, term life insurance has the ability to provide the benefits that your family will require. Nonetheless you should pay attention to buy the right life insurance policy. Become knowledgeable about the subject well before you tie up to an agreement with your insurers.

Social security will provide a survivor’s benefit upon the death of a worker eligible for social security. Of course, you will have to make a decision as to how you feel about the future of social security and consider the political risk (Congress) as well. Any social security benefits payable will reduce the amount of income that will need to be replaced.

Social security benefits are also available to the surviving spouse if there are children under the age of 16. Social security is also paid to a child or children until they turn age 18 or 19 if still in high school. Also, note that social security is available to widows or widowers at age 60 if the spouse had been covered. The period when no social security benefits are available is called ‘blackout period’. Calculating the payable is complex and is best done by contacting the Social Security Administration directly.

Retirement Plans

Retirement plans, which are usually defined as pension plans, 410(k) and other profit sharing plans, along with tax sheltered annuities, Simple Plans and IRA’s can all be used as a source of income replacement. Distributions from retirement plans require careful planning and though in order to receive the maximum benefit form the life insurance plan. Besides the issues of Capital Preservation as opposed to Capital Liquidation; there is the issue of whether these funds should be left to grow on a tax deferred basis as well as the issues of avoiding any income tax on the gain from the funds.

Current Life Insurance Plans

This includes any personal, individual insurance as well as any group life insurance (through an employer, etc). With group life insurance, you may also choose to not include it as usually it is not effective while you are with your current employer.

All in all possessing life insurance stands out as a support for your family when they mostly need it. It is important to calculate the right amount of life insurance that you need to be rightly insured.

It is also important for customers to advise the Insurance companies if in between application and acceptance they have any change in their health that they inform the Insurance Company before the policy commences. It is also the responsibility of the customer to make regular monthly or possibly annual payments. We would also suggest you review you policy periodically because if your circumstances change it may be you should also change your policy to be more appropriate to your new current situation. Most insurance companies would like you to inform them if you move outside the UK just to make sure that the policy is still suitable.

If you have taken the cover to protect your mortgage most companies would like you to inform them if you change occupations or become unemployed or even retire. It is very important that you are aware that if you stop paying your premiums you might only be covered for one month after your last payment made. It is also important to inform the Insurance Company if you change your occupation in between application and the policy actually commencing.