Life insurance helps to provide a financial float for hundreds of families globally, building viable stability for those closest to you once you’re gone.
Knowing the type of policy you are best suited to is essential, as differing programs offer a range of durations and benefits specifically catered for certain individuals.
Your own financial status, life expectancy and claims figure will all contribute towards the cover required, so here is a researched guide to selecting your most effective policy:
Life insurance is generically divided into two main types, term and ‘whole-of-life’ insurance.
The most popular type of life insurance cover, term insurance, simply sees customers choose a sum to be insured for and a time period in which their policy will run.
The policy will then pay out to your chosen beneficiaries if you are to pass away during this period, however there is a risk that premiums will be lost if you do not die during the term.
Within the area of term insurance, policies are further split into level-term, increasing-life and decreasing-term life insurance policies.
Level-life insurance is the most common form of term insurance, and simply pays out a lump sum if you die within the specified period of time. The strategy can be beneficial due to its stability, as monthly or annual payments are likely to stay the same – as well as the total you’re covered for.
Increasing-life programmes are becoming ever-popular due to fast-rising global inflation. This type of cover allows for consumer policies to increase at a fixed rate each year, aligning with the cost of living. However, this does of course result in the surging cost of policy premiums.
As a cheaper alternative to level-term life cover, decreasing-life policies are beneficial in repaying debts. For example, customers with mortgages can pay lower premiums for cover that will reduce over time.
Family income benefits are a further type of decreased-life cover, in which a regular amount is paid to your beneficiaries until the expiry date of your policy if you were to pass away. However, the potential risk of your family receiving only a small sum when you die long into your policy often deters people away from these programmes.
Whole-of-life policies are a safer option in terms of financial stability to the previous, as you are able to simply pay into a fund until your death. Though they are argued to be more of an expense than term insurance cover, their long term repercussions are great.
Providing every monthly or annual policy premium has been made, customers are guaranteed a payment to their beneficiaries. Within your whole-of-life cover, the policy is divided into what’s called ‘purchase life cover’ and ‘build up an investment reserve’.
These investments cover your increased cost of living, to help provide you a consistent policy over time. However, policyholders do run the risk of unsuccessful investments, leading to higher monthly premiums.
With-profit policy schemes can prove to be an advantage in securing a healthy lump sum on death, as any investment profits will be added to the payout received by your beneficiaries. These allow for a policy to be relatively stable whilst the market fluctuates over time, however they are becoming less popular.
Non-profit policies are beginning to take over, as holders do not run the risk of potential investment failures – with fixed premiums and payouts similar to term insurance cover, only over a whole-of-life scale.
To simply cover your funeral costs on the other hand, over 50-plans offer small payouts with guaranteed premiums, though some argue that much more is paid into the schemes than gained after death dependent on the policy length.