We all might have heard about the unfortunate fate of the UK Big Brother celebrity who was diagnosed with terminal cancer. Being a single 27-year-old mum of two boys, the Big Brother celebrity decided to sell her story to the media, sharing her daily ordeal with television viewers. Her main objective was to raise enough funds to secure the best education for her sons. She passed away in March 2009, leaving behind a legacy of £4m. What if she hadn’t had enough time to accumulate such wealth?

According to a 2006 survey carried out by sociologist Prof. Mario Vassallo, only one third of the Maltese adult population is covered by life insurance. This is unlike other European countries, where people take out a life insurance as part of their financial planning. It is mostly those who have experienced an early or sudden death of a partner who can understand just how much a life policy can alleviate the financial strain that prevails in such circumstances.



Life assurance and financial planning

If you are a parent, property owner, business partner, or sole trader, then life cover should be at the top of your financial planning list. At application stage, you would need to know how much life cover you require and for how long. Ideally you should have a life cover equivalent to at least four years’ annual salary or gross income.

If you are a parent, make sure that the amount of life cover will be enough to pay for your children’s private education.

If you also own property, it is likely that your heirs will have to pay inheritance tax. Therefore get legal advice to ensure that your total life cover will also provide for the payment of inheritance tax.

If you are a business partner, ensure that you and your partners are all covered by life insurance. Upon the demise of one of the partners, the lump sum received could be used to buy the shares of the deceased partner, ensuring that his/her relatives would be kept out of the partnership, particularly if they are not educationally qualified or have the business acumen to run the business with you.

If you are a sole trader, you may wish to leave a lump sum to your heirs, so they could keep the business running. You can also insure a “key person” that is crucial to your business’ profitability. You will be able to use the death lump sum to recruit and train an equally qualified employee, or use part of the sum received to give an “ex gratia” payment to the heirs of the “key person”.

Under current legislation, the sum payable on death is tax free. If you already have a life policy or will be applying for one, ask for a Designation of Beneficiary Form. This will enable you to nominate and change beneficiaries on your life policy. The instructions relating to the life policy supersedes the will, thereby making the payment process faster. You can also put your life policy under Trust (also called Life Insurance Trust) giving instructions to the Trustee of how and when the lump sum is to be disposed of or re-invested.



What type of Protection Plan?

Insurance companies offer various types of Protection Plans; the most popular being the Level and Reducing Term.

A Level Term policy will pay a fixed lump sum if death of the person covered occurs until the expiry date. The premium is also fixed for the duration of the policy term.

A Reducing Term policy pays a lump sum that decreases yearly, however the premium remains fixed. Although this is the most economical type of cover, it is best to have a Level Term. When a Reducing Term policy is used to secure a bank loan, there is usually no residual value for the heirs. The lump sum is just enough to settle the loan.

You may have as many life policies with the same or different companies, depending on the premium you afford to pay. There is an option to combine the protection element with a savings plan, so that you will receive a lump sum upon maturity of the policy. There is usually no refund or investment that is received back if you stop a protection plan.

Life cover does not cost, it pays to be adequately insured.

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