Finances can be a minefield and many people find financial products such as life insurance very complicated. The truth is that policies tend to boil down to five main types of life insurance that each tackle particular protection types so choosing a policy is all about matching your needs. Most people choose to take out insurance to ensure that large debts are paid off such as a mortgage or in order to look after their families once they are gone. Your needs should dictate which type of product you take out and the different types are each explained here.
Term Insurance
Term insurance is the most basic type of life insurance and is actually an umbrella term for all policies that include a fixed term cover period. Choosing this type of policy involves deciding the amount of cover you want and the period of time you would like to be covered for. If you die within the term, the policy pays out to your chosen beneficiary and if you don’t, the policy doesn’t pay out and you lose the premiums paid. There are two main types of term insurance – level-term and decreasing-term – to be considered as well as family income benefit policies.
Level-Term Life Insurance
This type of insurance pays out a lump sum if you die during the specified time and the cover remains the same for the life of the policy. This is ideal if you are looking to leave a lump sum for your family or if you need cover for a limited time such as the life of a mortgage.
Decreasing-Term Life Insurance
Decreasing-term policies are very similar but the amount you are covered for decreases over the life of the policy. These are ideal to cover debts that themselves reduce over time such as mortgages and are generally a much cheaper option than level-term policies.
Family Income Benefit
Family income policies are a particular type of decreasing term policy that pay out a regular income to the beneficiary rather than a lump sum. The important thing to remember about this kind of policy is that the payments will finish at the same time as the policy would so the pay-out can vary greatly.
Whole-of-Life Policies
Whole of life policies work in the same way as others but without the fixed term. You will pay them for the duration of your lifetime and they will pay out when you die. These are, understandably, more expensive than term policies and are often used as a way to cover future inheritance tax bills etc.
Whether you choose a term policy or whole of life, getting covered is vital to the financial health of you and your family, so now that you know how each policy works, what are you waiting for?
Bob Markey writes on Types of Life Insurance on behalf of www.lifebroker.co.uk
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