Additional features from a life insurance plan

Most life insurance plans have options available which can provide additional benefits for the life insured. These options must be selected at the time of making the application as they cannot be added later. The most common options are listed below.

Waiver of premium

Sometimes also known as premium protection. This option provides for the ongoing payment of the premium if the policyholder suffers long term illness/disability and loses his/her income as a result.

The option can be set up to cover the policyholder for loss of income from their own occupation or any occupation. There is a waiting period before a claim can be made. This is referred to as the “deferred period” and is normally 6 months but other periods are available.

Underwriting for this option is more strict than for life cover and will take in to account your occupation as well as health. In most cases the option involves a relatively small additional cost.

Indexation

This option is designed to minimise the effects of inflation reducing the real value of the sum insured. Under this facility the amount insured at outset increases each year, normally in line with the Retail Price Index (RPI), the Average Earnings Index (AEI) or a fixed percentage.

At the same time the premium also increases each year by whatever the sum insured increase is based on. Although the option has to be chosen at outset it can be cancelled at any time but cannot normally be reinstated.

Conversion

A life insurance policy can be set up with the option at the end of the policy to convert it to a whole life plan or endowment for the same sum assured without the need to provide further details of health. There is an additional cost involved for this option but it can be a useful benefit where the policyholders’ health has deteriorated since the policy was taken out.

Accidental death

On some plans an additional sum insured can be taken out to cover death by accident only. This provides for additional cover at lower cost than the ordinary sum insured.

If the life insured dies solely as a result of an accident then the sum insured for accidental death will be paid out in addition to the ordinary sum insured.

Critical illness cover

Some policies cater for critical illness cover as an option on the plan. The plan is normally set up so that if there is a claim the policy comes to an end. If a claim for critical illness is made and the life insured subsequently dies a claim for death benefit cannot be made.

Adding this option provides a cheaper way of covering the risk for critical illness compared to a stand alone plan. However, the disadvantage is that the policy will only pay out once.

There are a wide range of illnesses covered for critical illness including, cancer, stroke, heart attack, major organ transplant, Alzheimer’s disease and many others. Before a claim can be made the life insured has to survive for a period of time, normally 30 days from diagnosis.