Scratching your head over Life Insurance

Scratching your head over Life Insurance main image

How many times have you started reading something about life insurance or any type of insurance for that matter but stopped because the article is:

a. Boring
b. Baffling
c. Hard sell

Yep insurance can be very dull and confusing given all the ‘industry speak’ that insurance companies use; so at the risk of being boring, baffling but never hard sell, here is the low down on Life Insurance in plain English.  

Life Insurance policies are usually bought to protect the people you care about, paying out an agreed amount of money when you die. There are 3 types of Life Insurance that offer protection in different ways:

• Term Insurance
• Decreasing Term Insurance
• Whole of Life Insurance

As all 3 differ slightly, I will briefly explain how they work and highlight some of the typical uses. Of course if you want more information, you can take a look at the website.

Term Insurance
This type of life insurance plan pays out a cash sum if you die within a specific time frame, known as the ‘term’ of the plan, providing protection for your family over a fixed number of years. Basically you decide how much cover you would like and over what period of time. For example you may want cover for a number of years whilst your children are growing up in case anything happens to you or perhaps for an interest only mortgage or loan.

Some Term Insurance or level term insurance plans as they are also known offer a ‘low start’ option with lower premiums when the cover begins which increase over time, reflecting the increased risks we face as we get older. If you are thinking about this option, make sure you are comfortable with the increased payments.

Decreasing Term Insurance
Similar to term insurance only the amount of cover reduces over time. These life insurance plans do tend to be cheaper and are often used for debts that decrease such as repayment mortgages, hence the fact these types of plan are often also referred to as ‘mortgage protection insurance plans’. 
Whole of Life Insurance
These Life Insurance plans pay out an agreed amount of money when you die, regardless of when that is. As a result of this certainty (the cash sum will be paid out as long as you continue to pay your monthly premiums) this type of life cover can be more expensive compared with the term options which only pay out if you die within the agreed timeframe. 

There are two key types of Whole of Life Insurance that you can choose between; Guaranteed Over 50 life Insurance and Underwritten Life Insurance.

Guaranteed Over 50 Life insurance guarantees acceptance without the need for a medical. Quite simply you will be accepted regardless of the state of your health. You will not be covered for an initial period of either one or two years however if you do die within this time, all your premiums would be refunded.

Underwritten Life Insurance has a lengthier more in depth application process which includes health and lifestyle questions however it can offer at least 40% more cover than the Guaranteed option and cover is immediate once you have been accepted.

People tend to use whole of life plans as a way to reduce inheritance tax, to help pay towards funeral costs, leave as a gift for friends and family or pay off any outstanding debts. 

You can compare decreasing, term insurance and both the Guaranteed and Underwritten Whole of life insurance options on our website.

By Ashley Shepherd

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