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Life Insurance
About Life Insurance
The life insurance cans broadly be split into two types, term life insurance and whole of life insurance. Whole life insurance provides a pay out whenever you die as you are insured for the whole of your life. Term life insurance pays out only in the event of your death during the term of the policy and therefore this type of insurance policy acts as protection for a value you would like covered if you are no longer around.
Term insurance insures you for a set period – normally around 20 years – where you arrange for a sum of money to be paid in the event of your death to your dependents to cover something such as a mortgage. If you live the full term then nothing is paid under this life insurance policy.
There are two types of term life insurance quotes available, life insurance and life insurance which is assigned to lending such as a mortgage.
The concept of life insurance which is often described as ‘life assurance’ or ‘term assurance’ is a worse case scenario plan. None of us really want to contemplate death but if you have dependents then life insurance is sensible planning.
Why is life insurance necessary?
If you put yourself in the position of your dependents in the event that you died then you wouldn’t want them to add to the emotional suffering by burderning them with financial worry as well. That’s why it’s a good idea to have life insurance to take away the financial worry from those you leave behind.
There various reason to take out Life insurance and they include:
Paying off a mortgage - If you insure your life to the same value of that of the mortgage then it would be repaid when you die according to the policy terms.
Main Salary - if you are the main salary earner then life insurance can replace that sum of money or whatever predetermined sum you wish to prepare for.
Childcare Provision - If the person who dies is the one who looks after the child as their primary responsibility then life insurance for the loss of that person could cover the cost of necessary substitute childcare.
Life insurance can be there to cover any debts which may be secured against your home which will be something ideally you may want to pass on in its entirety. As such you will be able to maintain living standards for your dependents after you’ve gone.
Different types of term life cover
Life insurance can be on a single or joint life basis with additional aspects such as payment upon a medical diagnosis of a terminal illness that is identified within the life insurance policy. Should the policyholder be alive at the end of the policy period then there is no pay out.
There are several types of term life insurance:
Level term insurance – The value of the policy stays at the same level throughout the insurance policy and pays out should the life insurance policy holder during the period of the policy.
Decreasing term life insurance– this often the type of policy take out for a mortgage where the value of the policy decreases during the policy which will mirror the decreasing size of your mortgage as you repay it over the years .
Renewable term insurance – as the name suggests at the end of term when the life insurance policy expires there is an option to renew the policy and continue without another medical.
Increasing term insurance – The value of money declines each year as a result of inflations so this type of policy is designed to cover that where the sum required later on in the policy could be higher.
Index linked term insurance – a term policy where premiums are increased in line with the retail price index and hence the sum assured is increased.
Whole Life Insurance
A whole life insurance policy is a policy provides life insurance cover for the whole of your life where part of your monthly premium is invested into a fund which earns interest on a tax-deferred rate. Whole of Life insurance provides life insurance cover for the whole of your life where the sum insured is paid to your dependents upon death.
Whole of Life insurance is costlier than term insurance because it is certain that the life company will ultimately have to pay the sum insured in the policy.
Two types of cover available:
Maximum cover
Under this scheme the first 10 years of premiums are fixed and then after this period there is a scheme review and where appropriate the premium level will be revised to ensure the desired sum is covered.
Balanced cover
This type of cover is structured in order to have a level premium payment thoughout the policy where there is an appropriate investment to support the cover in later years. This means the value of the sum invested in the underlying fund growing at a particular level annually. If the performance of the fund is not adequate then the premiums could increase later on ensure the desired sum is insured..
The level of premium will depend on many aspects including insured, your age, your sex and general health.
The opinions expressed are those of the author only. The material is for general information only and does not constitute legal, financial or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation by an FSA authorised company where the market is FSA regulated.