Life insurance is something that everybody will need at some point but unless you work in the insurance industry or are close to somebody that does, what do you actually know about the types of life insurance policies that are available to you?
The answer to that question is more than likely ‘not a lot’, and why should you? Insurance is not something that is explained in school or college and in most cases where the need for it comes up it is due to a mandatory requirement, such as if you wish to start driving car. Life insurance on the other hand can often be something that is more optional than mandatory.
You can be forgiven for thinking that there is a generic life policy for insurance that everybody buys but this is really not the case and there are various different types of life insurance that can be purchased, each having it’s own specific features and benefits that may be of interest to consumers. We are now going to give a brief explanation as to what these different kinds of life insurance are so that you can recognize the difference between them.
Term life insurance – Term life is what is known as a temporary insurance policy or short term life insurance, because it only runs over a set amount of time that in the grand scheme of things is seen as the short term. You will pay a periodic premium to ensure that if you are to die or become seriously ill in the time that the policy is in force you, or your estate/surviving partner, will be paid out a pre-determined sum of money known as the sum assured/death benefit.
Term life insurance is generally a non-profit type of life insurance and that means that you are not investing the money you pay as premiums, you are simply paying for the assurance that while the policy is in force it will pay out in the event of death or serious illness as highlighted in the contract. These types of insurance are commonly taken out as assurance to cover a short term loan such as a mortgage and they can also be convertible or renewable come the end of the term.
Whole of life insurance – Whole of life policies are long term insurance contracts and as the title suggests run for the life of the plan holder and not just a set term as with term life policies. There are many variations to this type of life policy. The policy will pay out a pre-determined sum of money on the death or serious illness of the life assured and it also has a cash value as the premium is split to cover the insurance and as an investment. Premiums are pain of a periodic basis, i.e monthly, quarterly or annually for the life of the policy unless the plan holder wishes to cease paying premiums and keep the policy simply as an investment, if this happens the sum assured will drop as a result and the cash value will only grow in relation to the fund that it is invested in as no further premiums are being paid into the plan. These policies are usually found to be more expensive and are beneficial for the same reasons as term life but also those that want to use the savings element and cash advantages that these types of life insurance policies have. Universal life is also one of the most popular types of permanent insurance polices for life plans.
Which of the types of life insurance policies are applicable to you depends upon your individual circumstances and should be discussed with an insurance agent or professional who can help guide you to not only getting the best value for your money but also ensuring the contract that you buy fits you and your family’s financial requirements in both the short and long term.