Pension Term Assurance: stick or twist?
If you took out a Pension Term Assurance policy before 31 July 2007 you will continue to benefit from the tax advantages pension term assurance was intended to bring. But the policy won’t continue to be the best one for you. So when should you sacrifice that valuable tax relief and switch to a new product?
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What was Pension Term Assurance?
Pension Term Assurance (or PTA) products were intended to use pension scheme tax rules to provide life cover (hence the “pension” reference in the title – they had nothing else to do with pension schemes, and many of the products didn’t even use the Pension Term Assurance nomenclature).
Changes to the tax rules in 2007 meant that Pension Term Assurance lost its tax advantages, although existing policies were not affected. So higher-rate tax payers can continue to gain 40 per cent tax relief on the cost of their term assurance premiums (up to an annual limit that would only affect the very wealthy).
The policies were sold with a standard rate of tax relief already included in the price – and were generally more expensive than other term assurance policies, with only the tax relief making them competitive. This means that standard rate taxpayers may find little benefit in hanging on to the Pension Term Assurance product once their insurance needs change.
Reasons for sticking with Pension Term Assurance
Higher rate taxpayers should think twice before switching policies, though, as the extra 20 per cent tax relief they can claim could make staying with the Pension Term Assurance product worthwhile. Some policies were sold where the level of cover could be increased through the payment of higher premiums – and this facility in particular might justify sticking with a PTA.
If your health has deteriorated since you took out the Pension Term Assurance policy you should also think twice before switching, as the premiums on a new policy might be significantly more than before.
As the Financial Services Authority website points out, you should “make sure you don't lose out by switching” – and certainly not cancel your current policy until you have another in place, as you could leave yourself uninsured.
An expert can help make the right Pension Term Assurance decision
Talking to an insurance expert may help you make the right decision about when to switch from a Pension Term Assurance product. Jump Money is a specialist in critical illness and life insurance cover and is happy to answer any questions you may have related to life insurance, life assurance, term assurance and life cover. The company will strive to fit an insurance package to the exact criteria you need in order to help you avoid buying products you do not need as well as helping you fully understand your purchase.
To find out more about how Jump Money can help you protect yourself and your belongings call now on 0845 8516262 or fill in an online quote form today.
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