How to choose which plan is best for you

What do you want the plan to do?

Repay a mortgage or loan on your death.

If the mortgage is a REPAYMENT (capital and interest) then mortgage protection, also known as decreasing term assurance, is appropriate. This is designed to pay off the loan, and therefore the amount of cover decreases in line with the outstanding loan. It is difficult to arrange supplemental policies for new (larger) mortgages as the cover and term won't match the new (single) loan. Most companies recommend that you start a new policy and cancel the old one relating to your old loan (in that order).

If the loan is INTEREST ONLY (endowment style) then level term assurance is appropriate. The level of cover remains the same throughout the term because the loan remains the same. Level term assurance is more expensive than decreasing term assurance, because there is a greater level of cover later in the term of plan when you are most likely to die because you are older.
A term assurance plan does not accrue a value. It will only pay out if you die (or suffer a critical illness if covered) during the term. Alternative arrangements must therefore be made to repay the loan.

To provide money to your dependants after your death.

If you wish to leave a LUMP SUM TO YOUR DEPENDANTS after your death then level term assurance is appropriate. Most Independent Financial Advisers recommend a sum in the region of 10 times your salary to run until the dependency ends, i.e. when your children are 18 or 21. This is based on the capital being invested and paying 5% income, which is estimated to equate to what your dependants get from your salary.

Alternatively, a cheaper option is Family Income Benefit. This plan provides an agreed "income" after your death to the end of the term. This is a decreasing term assurance and is therefore cheaper than level term assurance.

Should I put my policy in Trust?

A flexible trust should not normally be used for mortgage related policies.
For policies providing benefits to your dependants it may be beneficial to put the plan in trust. The trust becomes the owner of the plan in the event of a claim. The benefits of a trust can be:
1. To protect the pay out from inheritance tax.
2. To pay the benefits more quickly as they do not go through probate.
3. To protect the benefits from creditors of your estate.

You should not complete such documentation if you have any doubt about any aspect of what you are doing. You should seek the advice of a solicitor.

Most Trust forms are attached to the application forms. The forms for Norwich Union are below.

Norwich Union Flexible Trust Application
Norwich Union Flexible Trust Guide
Norwich Union Advanced Trust Guide