Life Insurance
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There are many types of life insurance such as level term life assurance, whole of life insurance and mortgage term insurance. Life insurance (also known as life assurance or term assurance) can be put in to two categories; protection only and investment.
Protection only
Term life insurance is the simplest form of life insurance available. These life insurance policies pay out a guaranteed sum in the event of death. You can cancel the life insurance policy at any time but your previous payments will not be refunded.
Decreasing term life insurance is also a protection life insurance product and is usually used alongside mortgages. The decreasing term life insurance policy involves the sum insured decreasing as time goes on, usually in line with how much you owe on your mortgage. In the event of death the insurance policy will payout a sum which will be sufficient to redeem the outstanding mortgage. Because the life cover reduces over time it is one of the more cost efficient life insurance products. The opposite of this product is increasing term life insurance which involves the level of cover and premiums rising over time.
Level term life insurance pays out a fixed sum during the life insurance policy term in the event of death. Because the sum insured doesn’t decrease with time the premiums are more expensive than for decreasing term life insurance. This life insurance policy is more suitable for family protection i.e. giving your loved ones a guaranteed sum in the event of death. For family and income protection there is another type of policy available known as family income benefit which pays out a regular income rather than a lump sum.
Critical illness life insurance pays out a fixed tax free sum in the event of the insurance policy holder suffering from a serious illness such as a heart attack. The benefit of critical illness cover is that the proceeds can be used to alleviate financial pressures at a time of need.
Investment type life insurance
Whole of life insurance is a type of life insurance product which covers the policy holder for the duration of their life. Whole of life insurance is therefore guaranteed to pay out and as such this life insurance policy builds up an investment value which can be cashed in by surrendering the life insurance policy. However, is takes sometime to build up a surrender pot and if you’re looking for a protection life insurance policy there may be more suitable alternatives. There are many options within these life insurance policies and they can also be used for effective tax planning.
