What Is Life Insurance?
A life insurance policy is a form of cover whereby a sum of money is paid out when the holder of the policy dies. It offers piece of mind for both you and your family in that they will be financially secure in the event of your death.
Whilst this seems a simple enough concept there are different types of life assurance all of which work in subtly different ways and all of which offer different forms of cover and pay-out. So before choosing your type of life insurance, or indeed life assurance product, it is vital that you seek life insurance advice from a qualified professional.
Life Insurance – The Options
As explained there are several different types of life insurance – below is a brief overview of each;
Term Life Insurance
This is probably the most common, easiest and inexpensive form of life insurance. Essentially the policy covers you for a fixed period of time – usually 15 – 20 years. If you die during the timeframe of the cover a lump sum is paid out. If however you out survive the policy then you receive nothing – at this point you can either renew the policy, move to another type of policy or insurance company or continue without any cover.
Term Life Insurance can be further broken down into three sub categories;
1. Level Term Insurance
Premiums are set at a fixed rate and paid on a regular basis. A pay-out can be made at any point during the term of the cover and the value of the pay out, as with the premiums, is constant for the duration of the insurance policy.
It is often wise to fix your premiums in this way as life insurance becomes more costly the older you become. However when it comes to having to renew your policy there can be a sudden leap in price, and if you developed a serious illness during your level term policy you may find that when you come to renew life insurance companies won’t offer you cover!
Fortunately nowadays there are plans specifically tailored for such circumstances, over 50s policies, policies for which no medical is required. It almost goes without saying that such policies are more expensive!
2. Increasing Term Insurance
As the name would suggest this type of life insurance policy sees the premium increasing year on year during the lifespan of the product. As the premium increases so too does the level of cover giving you guaranteed insurance without the need for a medical.
3. Decreasing Term Insurance
This is the least expensive form of term life insurance – whilst the premiums stay at the same level the cover offered decreases during the life of the product. This type of life insurance is popular if you are looking for a product to provide financial security whilst you pay off some big debts, for example your mortgage.
Whole of Life Assurance
Many life insurance companies class whole of life policies as insurance products, however they are actually assurance policies. Please refer to our section on “Life Assurance” for further details.