Understand the basics of Life Insurance
If you're confused by the variety of different Life Insurance products on
offer and the industry terminology used then you're not alone.
This article attempts to simplify the whole process and explains the differences between the various 'Protection' products you'll come across.
Protecting your nearest and dearest
Life is full of unexpected surprises - some good and some simply awful.
Although you can't prevent most of life's ups and downs you can protect the
things that matter to you the most. If you pay to protect your car, your house
or your pets through insurance, why not your health; your income or your
life?
Life insurance can be arranged to protect you for wide variety of events to
provide money to your nearest and dearest. You can put in place plans to provide
a cash lump sum or regular monthly amount if you die. You can also put life
insurance in place to provide help if you suffer a serious illness, an accident,
fall sick or are unemployed.
Like every other form of insurance - the more you cover and the greater risk
you present the insurance company the higher your premiums will be. So you have
to decide how much you can afford and the level of cover you really need to put
in place - before something happens.
Good news is no news
As the media don't like covering good news stories you don't tend to hear of
the countless number of families every year who don't face financial hardship or
having to sell their house on top of losing a loved one - simply because they
put the correct cover in place. So do something and do it this week.
Life Insurance Options
Level Term Assurance
Level Term Assurance is simple an overly technical name to describe a policy
that pays out the same amount if you claim during the time the policy lasts.
Level Term Life Insurance is typically the cheapest form of cover you can buy
and as the saying goes "it does exactly what it says on the tin".
You decide how long you want the life insurance to last (typically in years)
and how much money you want cover for. Whoever receives the money, whether it's
your family or someone else, they can spend it on whatever they choose.
Decreasing Term Assurance
Like Level Term, Decreasing Term Assurance provides a one-off lump sum of
money if you die during the time the policy is in place. Decreasing Term differs
in that the level of cover reduces over time so is cheaper than a Level policy.
The product has generally been used to help pay off a mortgage. If you die while
the cover is in place the amount paid out should be enough to help pay off
whatever mortgage is left to pay at that point.
Whole of Life Assurance
Whole of Life Assurance gives you cover throughout your life. Whenever you
die a one off lump sum of money will be paid which will then be part of your
estate. Whole of Life insurance can be used to plan for funeral expenses, tax
planning or just to make sure your family has something when you pass away.
Whole of life cover can be expensive as it lasts as long as you do unlike 'Term'
insurance which only lasts for a specific length of time.
Accident, Sickness and Unemployment
Insurance
If you're not able to work because of an accident, sickness or unemployment,
Accident, Sickness and Unemployment Insurance will provide you with cover. The
policy is designed to pay you a regular income to help replace your lost
earnings while you are off work. To set up a policy you simply have to choose
how much income you would like to receive (within the limits available) and how
long you want your policy to last. With most Accident, Sickness and Unemployed
policies you'll keep receiving the money for up to 2 years, or until you return
to work.
Income Protection Insurance
If you suffer an illness or accidental injury that stops you from working,
Income Protection can provide valuable financial support to you and your family.
To set up an Income Protection policy you'll need to choose the level or amount
of cover you need (within the limits available) and how long you would like the
policy to last. If you need to make a claim then you could receive a regular
payment to assist with the bills and other expenses that your salary would
normally cover. Your Income Protection policy will pay you until either you
recover and return to work, or until the age you selected when you took out the
policy, usually your planned retirement age.
Choosing Life Insurance
When you decide to buy a Life Insurance product the choices and decisions you
make are not so different from the ones you make when you choose any other big
purchase - what exactly will suit you and how much can you afford for the best
deal?
A good starting point is to think about all the absolutely necessary, must
have financial commitments you have and how much you need to pay for those if
your income stopped? When you've got a monthly figure multiply it by say 10 to
get to an indicative figure for the level of cover you'll need. You should also
consider some of the following questions:
- What do you want cover for - life, critical illness, an accident or loss of
income?
- Is the cover for just you or your partner too?
- What medical conditions, prescriptions or past hospital visits have you
had?
- Do you want the premiums to be fixed or variable?
- Do you want to buy the product off the internet or seek the advice of a
professional on the best options for your circumstances?
- Should the product pay out a lump sum or a regular income?
If you are unsure of which product is right for you and how much cover you
need, a financial adviser will be able to help you to assess your situation.
What do you think? Have your say on our Retirement Discussion Forum
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