Insurance World

At last, a real life insurance bargain – but as always there are strings attached!

If you take out a new pension policy after 6 th April 2006 and within the same premium pay for life insurance cover, then you can use your pension contribution tax allowance to reduce the cost of your life insurance. This means if you’re a standard rate taxpayer, you’ll receive 22% tax relief on your life insurance premiums and relief at 40% if you’re a higher rate taxpayer.

The combined premium you pay for your pension and life insurance will automatically be reduced by 22% by the pension provider. But if you’re a higher rate taxpayer, you’ll need to claim the balance to bring your relief up to 40%, on your year-end self-assessment tax return.

But there are three strings attached:

• The pension company must also provide your life insurance and be paid as one combined premium.

• The current value of your pension fund plus the sum insured by your life insurance policy must not exceed Ј1.5 million.

• Your combined annual premium for your pension and life insurance must not exceed Ј215,000.

In practice the savings on your life insurance will not be quite as big as you might otherwise expect. Its because the underlying premium for the life insurance cover will be a bit more expensive than a stand-a-lone policy with the same company and, in all probability, the insurance company providing your pension policy won’t be the cheapest on the life insurance market. Furthermore, you can’t buy a combined pension and life insurance policy online - so you’ll miss out on the Internet’s discounted life insurance prices.

Nevertheless, if you’re a higher rate taxpayer, your tax savings are bound to guarantee that your life cover is a real bargain! If you’re a standard rate taxpayer you’d be wise to do a little homework. Before you buy, you should get an online quote for life insurance to compare against the price you’d pay if you bought it alongside your new pension.

There are some other points you also need to know. Firstly we know you’ll ask whether you can convert your existing life insurance policy into a combined pension purchase. The answer is no! The tax relief is only available if from the outset, you take a pension and life insurance policy as one combined purchase.

Secondly, the life insurance cover can only apply to the owner of the pension policy - you can’t add in anyone else on the life insurance policy. Joint policies aren’t available as a pension/life insurance package.

And whilst many people also add critical illness cover to their life insurance, this is not possible when you have a pension/life insurance package. Critical illness cover pays out a tax-free lump sum if you are diagnosed with a specified serious illness which is listed on your policy. If you want critical illness cover, you’ll have to buy a normal stand-a-lone policy.

Finally, if you’re going to buy a pension life insurance package and replace your existing life cover, a few words of warning. You’ll obviously be older now than when you first took out your existing life insurance policy. This means that the premium rate on your new cover will be higher.

Furthermore, the premium for your new policy could be loaded if you’ve developed any medical conditions since taking out your original life insurance. Remember, even if you’ve simply put on weight, your premium could be loaded. In extreme medical cases, the proposed insurer might even totally refuse to provide life cover. To avoid the possibility of being caught without life insurance cover or being forced to accept a more expensive premium, you should obtain written confirmation from your pension company that they will insure you. You then need to compare their proposed cost, net of tax, with your existing premium.

Are your house contents insured? Really? Are you absolutely certain? If you’re under insured, from a legal point of view, you may as well not be insured at all. Your insurer may well simply scale back your claim by the amount you’re under-insured, but they would be within their rights to reject the claim totally.

Many people under-estimate the value of their personal possessions. If you go through your home, room by room, and make a rough mental note of the contents, you may be very surprised at the result. Don’t forget to include portable electrical items, jewellery, designer clothes and paintings and even photograph frames. It’s often the smaller items that are easily stolen in a “smash and grab” type of burglary and these can be the very items which you overlook in your valuation.

When working out the premium for your policy, insurers use your postcode, the size of your home and the claims history of the area. Contents calculators are often available online, which are useful in deciding the level of cover required. There are steps you can take to help to cut premiums and stay safe.

In addition to the normal alarm system, you could think about installing motion-activated lights at the entrances to your house, not only are they a deterrent for the burglar but they’re convenient for your own use too. A security cover inside a letterbox makes sure a thief can’t gain entry by putting a hand or instrument through it to open the door. Fitting all outside doors with efficient key-operated locks and bolts is a good idea.

Inside the house, valuables could be kept in a safe and security fittings could secure any precious works of art. It’s a good idea to use some kind of marking or security code and record serial numbers, where this is relevant. Photographs of your valuables are useful too.

There’s a wide range of policies available. The majority of standard household policies will cover contents of up the Ј75,000. It is normal for items valued at over Ј1,500 to be listed separately. These will be covered inside the home, but would need “personal belongings insurance” if they are to be insured away from home. It is possible to arrange cover for your offspring’s belongings whilst they’re away from home as long as they’re “temporarily” removed and would normally be in your home.

For those who find their contents exceed Ј75,000, there are specialist policies covering “high net worth” clients. The range of cover extends to second homes abroad, which is useful for personal items. On this type of policy there is no need to list items separately as all items are covered.

It is possible to get discounts on insurance if you cover both your home contents and take out buildings cover with the same company.

There are wide-ranging offers and discounts available, with lots of companies vying for your business. Remember you need to insure for the full value of your belongings to avoid the risk of a claim being reduced or rejected, whilst still getting the very best value for money. The easy way to do this is via an on-line insurance broker. They’ll be able to search a wide range of insurers and come up with the right policy to suit your own particular needs. Not to mention the (up to 10%) on-line discount.

Stay safe.