Vipond, who is the director of financial regulation and tax at the ABI explained that the move could leave millions of taxpayers out of pocket.

He did however note that his organisation and the industry in general support plans by the government to simplify the tax system through their range of proposals announced in their plans published last Friday (27^th May)

Customers who make payments into a life insurance policy they took out before 1984 are currently entitled to a tax relief worth 12.5% of the life insurance products premium.

The entitlement, which was abolished for new customers in 1984, was left in place for existing customers when the government made their changes in the eighties because the ruling would naturally end as the last policyholder passed away.

The government appear keen to speed the process up, and want to simplify the system now, removing the need for rules relating to customers who took out policies before a set date, and introducing universal rules for everyone.

Vipond argued however, “Insisting on abolition now will affect up to 1.5m people. They may have to pay more into their policies to maintain the level of benefits they have been expecting for the last 30 years. Many of these people will be retired and on low incomes.

“It will require new legislation to prevent tax charges arising if policies are changed to reflect the loss of tax relief. It will also cost the industry, as a whole, millions of pounds to make this change.

“The people who get this tax relief started paying into qualifying policies taken out before 1984. The decision was made 30 years ago to let these policies run their course with this tax relief in place.

“There is no logical reason to change this approach now as this tax relief will end naturally over time anyway without the government doing anything.”

Every single year in the UK around 32,000 life insurance claims are made by families who have lost someone, and the average waiting time for a claim is as long as four months, often too long for a families delicate finances.

New guidelines introduced by the Association of British Insurers (ABI) will see claims turned around in just four weeks, four times faster than before.

The ABI worked in association with the Law Commission to create a solution which will bypass the lengthily legal process involved in winding up an estate once someone has passed away.

The new process will see the claimant sign a declaration agreeing to return any money that that have received should the legal process decide that they should not have been given it in the first place.

The claimant will also need to provide evidence to the insurance company that they are the rightful recipient, evidence that will later be reviewed by the legal teams dealing with the process.

The ABIs director general, Otto Thoresen explained, “Dealing with bereavement is hard enough, without the added stress of worrying about money.”

“This new life insurance claims process means the time it takes on average to receive a payout will drop from four months to just four weeks.

“We believe that this will go some way to alleviating financial hardship for a deceased person’s dependents, especially families on lower incomes who have few other assets available to rely on.”

Life insurance is often taking out by someone who wants to make sure their partner, spouse or family will be looked after financially should they die and no longer be able to provide for them.

The lump sum paid often provides a lifeline, and can pay off a mortgage, as well as providing money at a difficult time, especially if savings are unavailable, while the family get back on their feet and readjust their finances accordingly.

Many couples take out a joint life insurance policy when they buy a house together so that if one half of the couple does die, the house will often by paid for by the policy, not leaving the other one unable to afford the mortgage repayments.

Life insurance deals bought on the High Street are ‘almost always’ more expensive than term cover and critical illness cover bought through an independent adviser, industry experts* revealed this week.

The comments came as Nationwide confirmed that it adds a 20% mark-up charge on life insurance cover it sells for Legal & General, its product partner for life insurance policies. Nationwide’s advisers are therefore limited to offering only L&G life insurance to their customers.

The same it true of advisers at the other High Street banks and building societies. They are tied advisers, limited to offering only the products of their own company. While Nationwide offers only L&G life cover, Lloyds TSB offers only life insurance by Scottish Widows, and Santander offers only life insurance deals provided by Royal London. In each case, the bank or building society adds its own commission to the life insurance it sells. Due to these commissions, and the limited product range the tied adviser has at his disposal, it is rarely possible to give a truly competitive deal that will compete with the best on the market.

Consumers fare little better by going directly to the insurance companies themselves, as no advice is given and, again, no comparison is possible with life insurance cover from other providers.

Even local insurance advisers are often multi-tied agents, who are again limited to the products of the small number of insurance companies they represent.

An independent financial adviser, however, will keep track of changes in pricing on a daily basis, and can check who are currently offering the best life insurance deals. This is known as a ’whole of market approach’, and it ensures that, by looking at the full range of life insurance policies currently available, the independent adviser can find the best life insurance deals for the customers.

 *Source: LifeSearch

A new life insurance policy now offers life insurance cover to those with existing medical conditions, those working in hazardous occupations, and those involved in extreme sports.

The life cover is branded as ‘Unusual Risk’ and is offered by Compass, a specialist insurer which has previously focussed on offering financial products to HIV sufferers.

Unusual risk offers life insurance, backed up by a specialist information service, to those with pre-existing medical conditions, and to those on a list of defined hazardous occupations.

These include construction workers working at heights, airline pilots, ambulance drivers, cabin crew, camera operators, farmers, fishermen, and HGV lorry drivers.

The Unusual Risk policy also caters to those who expose themselves to danger in their leisure pursuits. It covers those involved in abseiling, caving, hang gliding, mountaineering, parachuting, rock climbing, sailing, and scuba diving. These are activities which for most mainstream insurers have an extremely adverse affect on the cost of life insurance cover, increasing the cost of the life insurance premiums by up to 50% in many cases.

Alternatively, disclosure regarding dangerous activities is often dealt with simply by treating them as exclusions in the life insurance policy, so that death resulting from participation in the sport would not be covered.

Choosing critical illness insurance is a complex issue these days, with so many critical illness policies and so many providers on the UK market. Our expert advice team checks the product ranges of all the leading providers on a regular basis, in order to locate the best critical illness policy for you.

Here are a number of the features they have highlighted, that differentiate the various critical illness policies currently available.

Free children’s critical illness insurance: most of the leading providers now include free critical illness insurance cover for your children, varying from £15,000 to £25,000 per child, depending on the policy. Skandia allows 2 parents with single policies both to claim for their sick child, doubling the cover to £50,000.

Index-linked or increasing cover: some providers such as Bright Grey offer the option of cover that increases each year, to offset the effects of inflation on your payout.

Regular income options: while a critical illness insurance policy usually provides a tax-free lump sum payout, some policies offer a regular monthly payout instead, providing a ready ‘replacement salary’ if you lose your income due to illness.

Waiver of premium: LV is one of the providers which will take over payment of premiums on your critical illness policy for a time, if you stop work due to accident or illness.

Severity-based cover: Prudential offers reduced payouts for milder forms or instances of certain illnesses, thus maximising the chance that the policy will pay out.

Free cover during application: Scottish Provident offers free critical illness cover while your application for a policy is being processed.

Decline renewal of premium option: Zurich offers policyholders with renewable cover the option to decline an increase in premium, and accept a reduction in cover instead.

These are just some of the options our critical illness team can explain, when providing your critical illness insurance quote. For further details, refer to our critical illness insurance providers page.

The average UK household spends more per year on the lotto than on life insurance cover.

Only 41% of people in the UK have life insurance cover, while 68% of people play the lotto and gamble in various other ways. This means that while only 20m people in the UK have a life cover policy, some 34m gamble, according to Aviva.

The monthly average household spend on the lotto and on gambling is £13.80, while the cheapest life insurance cover can mean a life cover policy that costs just £5 a month.

Aviva claimed that, if most people believe they stand a better chance of winning the lotto than of benefiting from life insurance cover, they are sadly mistaken – and by a long way. Devoting cash to gambling, rather than to the best life cover, could be like ‘playing Russian Roulette with your loved ones’ security’.

While only 1 person in 14 million wins the lotto, 1 in 3 people die of cancer, and 1 in 5 people die of heart disease.

Aviva pointed out that we are much more likely to be killed by a shark (odds of 3.2m to 1) or be struck by lightning (258,000 to 1), than to land that elusive lotto windfall.

“People know that protecting themselves and their family is extremely important, but many people wrongly think it’s too expensive, and delay life insurance. People gamble in the hope they may win the lottery, but put off life insurance thinking it won’t happen to them, when it is one of the unfortunate guarantees in life,” said Louise Colley, head of protection at Aviva.

Would you like to learn more about life insurance cover? Make a life insurance enquiry or ring freephone 0800 678 5929 now.

Time is running out for small businesses. Only 18% of small businesses have key man insurance to cover the death of a key employee, despite the fact that two thirds of businesses recognise and fear this possibility, according to Scottish Provident.

The vast majority (65%) of companies agree that the death of a senior employee would have a ‘severe impact’ on their business, with over half (57%) also accepting that the business would be severely affected, if a key employee were out for just six months, due to serious illness. Again, only 18% of small businesses have planned for this eventuality, by taking critical illness cover within a general key man insurance plan.

With key man insurance, policies are taken out, not for the direct benefit of human beneficiaries, but to offset the costs of tragic events for a company or business.

The reasons for taking key man insurance are proven by the figures: in a small business with 4 key male employees, there is a 29% chance that 1 of them will die before retirement, and a 68% chance that 1 will suffer a critical illness, according to Scottish Provident.

Key man insurance (also known as keyman insurance, key person insurance or keyperson insurance) can secure the stability of a business in adverse situations, in a variety of ways.

If a director has given personal guarantees on a loan to the business, for example, key man insurance cover, paid by the company to insure the director’s life for the amount of the loan, means the business can repay the loan, with no impact on profits, if he dies.

In partnerships, key man insurance comes into its own in unexpected buyout situations. If each partner has both a critical illness insurance policy and life insurance cover, and a tragic event (either critical illness or death) occurs, the key man insurance can enable the other partners to buy the partner’s share of the company, with no impact on the company’s reserves.

The Aviva COTS (Cost of the Sibling) study found that with the cost of childcare for 2 children now almost £16,000 a year*, many spouses would be working ‘just to pay the childminder’ in the event of the death or loss of income of their partner. The only option would be to survive on state benefits, if no life insurance cover and critical illness insurance were in place.

For many 2-child families, the cost of childcare has already made it unattractive for both partners to remain at work, after the arrival of the second child. In Aviva’s study of 1,000 parents with 2 children, 4 in 10 families felt that continuing to work was an unworkable option and one which will be even less so, with the loss of Health in Pregnancy grants and other benefits in the June 2010 budget.

*Full-time nursery place for child under 2 typically £152 per week or £7,900 per year

Taking as an example a person disabled by a stroke, the costs of converting their home to deal with this tragic situation would require over £3,200 on day one. This is simply to facilitate basic functions such as access, mobility, and continued independence within the home. Additional costs for medical treatments and carers would follow later.

Costs of all items below are based on actual products currently available on the market.

A motorised wheelchair would be required straight away, to allow the person freedom to leave the home when they so desire. As of today (June 2010) a basic model would cost £455.

In order to negotiate a step in the garden path, 1 x 2ft foldable access ramp: £95.

In order to have access to the upper floor of the house: 1 x motorised stair lift: £895

Use of toilet: toilet frame with integrated designed seat: £87

Personal bathing: in order to lower and raise the disabled person into the bath: 1 x electric bath seat £581

For rest day and night: hand-controlled position-adjustable electric bed frame: £1,168

This gives a total of £3,281 for indispensable items that would be immediately necessary for independent, day to day living, following a stroke.

Critical illness insurance cover offers a tax-free lump sum payment when a person is struck down by a critical illness or health condition. Each policy has its own list of conditions covered and its own exclusions. Understanding the ‘small print’ is particularly important, as exclusions may have a direct effect on critical illness insurance claims.

This makes critical illness insurance a product best purchased with unbiased financial advice from an independent financial adviser. Many customers can achieve a saving by taking a combination of life and critical illness insurance as a ‘bundled’ product.

Some of the ancillary benefits now included in life insurance cover and critical illness insurance can be a
considerable factor in deciding which policy is best for you.

For new parents, for example, Aviva is now offering free life cover of £10,000 to those who contact the company before their child is 6 months old. The free cover then runs until the baby’s first birthday.

Many of the larger insurers, including Aviva and Prudential, include cover for your children, when you take out a critical illness insurance policy. This provides your children with critical illness insurance free of charge until they turn 18. Around 2% of claims for critical illness relate to children, and policies generally include conditions often associated with the young, such as leukemia.

Staying with the area of criticial illness insurance, LV= offers critical illness and income protection customers
who make a claim some attractive options, once their claim is complete. Their Extra Care service offers customers oncology, cardiology or neurology care, as well as access to therapeutic, physio or counselling expertise.

Those who buy life insurance cover through Scottish Provident are also offered the Lifeline service, which offers access to experts giving life and health-related information relating to legal issues, employment, and counselling services.

Bright Grey offers its Helping Hand service, which give customers access to a personal nurse adviser. This advice is also available to your partner and children, even if you have divorced since taking out your life and critical illness insurance policy.

Aside from pure life and critical illness insurance, there is another useful option for parents contained in the income protection insurances by Royal Liver. A lump sum of four times your gross monthly income protection benefit (up to £25,000) is available to parents who want to give up work to care for a seriously ill child.

Insurance specialist LifeSearch, which highlighted these optional services, pointed out that ‘a good financial
adviser will be able to identify the most suitable policy for a client that many direct sellers just don’t have the expertise to do.’