In uncertain times we want to know we’ve done our best to protect our loved ones if anything happens to us. We can’t prevent them from grieving but we can prevent them from being burdened with financial worries. With such a wide and varied choice of life cover policies available on the market today, how do you know which one to choose?
Generally speaking we would say there are two types; Term Insurance where you insure against death happening within a certain period of time, and Whole of Life insurance, which is also known as Life Assurance. In the latter instance you are “assured” of receiving a payout. As with all financial matters the correct choice will very much depend on your own unique circumstances and requirements, but, in an attempt to make that choice a little easier, here is an overview of the most widely chosen life covers available.
Term Insurance This is by far the simplest and cheapest type of life cover. You decide on a period of time, the Term, for which you wish to be insured. If you die within that term your designated beneficiary will receive the payout. If you do not die there is no payout, no refund of premiums and you would need to decide whether you wish to obtain a further term of cover.
Within the category of Term Insurance there are several options available: Level Term Insurance This is a period of cover that can be as short as one year or as long as 30 years. Your premiums are calculated for the risk value of the entire term and then spread equally throughout the life of the policy. A set sum is paid out if you die within the term period. Renewable Term Insurance Quite simply this allows you to extend the set term of your policy without having to be reassessed.
With term insurance obtaining a renewal can be tricky if your circumstances change, e.g. you may be diagnosed with a terminal illness making you a high risk for your insurance provider Decreasing Term Insurance Again, you choose the term and the premiums are calculated and equally distributed for the duration of the policy. However the amount paid out will reduce at regular agreed intervals. This is often used to protect mortgage repayments, as the longer you hold the policy the more the payout decreases as the mortgage reduces.
Increasing Term Insurance or Index Linked Term Insurance Thanks to inflation a thousand pounds today will not have the same value, in real terms, in ten years time. Term Insurance calculates the payout required ensuring your beneficiary get the real value you want them to have. This will cause your premiums to rise during the course of the term.
Whole of Life Insurance Whole-of-Life Insurance, or Life Assurance as it is often known, guarantees to pay out upon either your death or diagnosis of a terminal illness. You are assured a payout, and your premiums are invested so that your policy may also attract a bonus payment upon maturity, unlike Term Insurance, which may not payout during their term and won’t refund premiums if a claim is not made.
Because Whole Life Insurance guarantees a payout, your premiums will be more expensive than with other options. There are a variety of policies available in this category including Maximum Cover, Low Cost Cover, Balanced Cover as well as others. As you can see, there is a broad spectrum of life cover options available.
Insurance providers all have their own special selling points to attract your custom and you should take these into consideration. This is a very personal matter that will vary greatly between individuals so it is of vital importance that you research what your needs are as thoroughly as you can before you sign on the dotted line.
Some things really are a matter of life and death. Jacob Chapman is an author who shares his financial expertise by providing valuable insights on insurance in his articles. Read some of the most recent ones on www.mortgagelifeinsurance.org.uk or www.lifeassurancequotes.org.uk .