What Are The Different Types Of Life Insurance Policies?

Whole-of-Life Cover

This type of insurance policy explicitly guarantees the insurance beneficiary a predefined payment irrespective of when the insurance benefactor dies. This is unlike the other types of insurance cover that is only obligated to make payment to the beneficiary if the insurance sponsor dies before a specific date.

This is perfect for a hypothetical scenario where the insurance in only needed to ensure payment for a mortgage that typically last for 25 years. Whole-of-life policies usually cost more than other types of cover, this is expected because the cover is guaranteed to issue payment at some point in the future.

Term insurance is an alternative to be considered in the quest for a cheaper life insurance policy

Term Insurance

Term insurance also known as term life insurance offers a guaranteed payment to a family provided that the insurance sponsor passes away within a specific period of time. As it were, the paradigm of insurance benefactors is to make sure that in event of the unexpected, their dependants will be able to cover living expenses like a mortgage or loss of income.

Bearing in mind that a typical mortgage is paid off in 25 years, it is absolutely unnecessary to extend the life cover beyond this period. Likewise, a policy holder may want the cover to elapse after the children have finished schooling and consequently are independent.

Limiting the policy term of a life insurance in this manner will lower the premium to be paid as against whole-life-cover. This type of policy is also referred to as level-term assurance due to the fact that the insurance layout is the same irrespective of the time that the policyholder dies.

Decreasing-Term Insurance (also known as mortgage life insurance)

There is an alternative option for the prospective holders of term life insurance to have the premium reduce every year. Such a measure is usually adopted to correlate with the eventual decline of mortgage debts as more outstanding debt is settled each year.

An example is seen in a hypothetical scenario where someone took a 25-year life term insurance to cover for a £150,000 which correlates with a 25-year mortgage debt. However, after 15 years, a considerable amount of the debt would have been paid off by the mortgage holder.

In order to prevent a situation where the policy holder pays more than is required in premiums, decreasing term insurance comes to play in such situations; in essence, the premium will become lower than the normal term insurance.

Increasing Term Insurance

In contrast to decreasing-term insurance, a policyholder may request that the potential payout increase every year to reflect a marginal increase in inflation. With an index-linked policy one can choose to link insurance payout directly to an inflation measure such as the Retail Prices Index (RPI) or Consumer Prices Index (CPI), make a predefined arrangement for the extent of cover to rise by a fixed percentage annually.

As such, the premium payable will be higher than level term and decreasing term insurance.

Renewable Term Insurance

In this type of policy, the cover is provided for a fixed period only. An example is health insurance where the period can be extended after it elapses without the need for a further medical check. Although the premium may increase as the policyholder grows older but health issues that arise after the initial policy was taken out will not be considered in the new cost of the policy.

Joint Life Insurance

This is a single policy that will be payable in the event of the death of one of the couple. This is usually cheaper than paying premiums on two separate policies. It is noteworthy to bear in mind that a joint policy will pay out on the first death which also terminates the policy cover. In the event where there are two separate policies, the second policy will remain valid regardless of claims on the first policy.

Death-in-Service Benefits

There are a number of corporate organizations that offer the family of staff a lump sum upon demise while in active service with the firm regardless whether the death is associated with their job. Also members of company pension schemes may also be entitled to payments from the pension if they die before retirement.

It is important to take note of the fact that life insurance cover payment is equivalent to three or four years salary in event of a death-in-service. Unfortunately, this amount might not cover the needs of the family and the policy cover may end as soon as one leaves the company.

Life Insurance Basics

One of the most important things you can do as parents is to ensure the financial welfare of your children in the event of your death. Life insurance is the best way to be rest assured that your children will be taken care of if you die. Although we never like to think of that kind of thing happening, but it does.

What is Life Insurance

Life insurance is a policy that you can enter with your insurance company, which promises a certain amount to your beneficiary(ies) in the event of your death. Usually, a spouse will name the other spouse as well as their children as beneficiaries of the policy. As part of the agreement with life insurance, your insurance policy will be a monetary value, that you will in return, pay a monthly premium for. Premiums usually depend on your age, gender, occupation, medical history and other factors.

There are other types of life insurance that may provide benefits for you and for your family while you are still living. These policies can accrue a cash value on a tax-deferred basis and can be used for future needs such as retirement or your child’s education.

Do I Need Life Insurance

Earning an income allows you and your family to do many things. It pays for your mortgage, buys cars, food, clothing, vacations and many other luxuries that you and your family enjoy. However, certain situations can cause you to lose your income, and those who depend on you also depend on your income. If any of the following statements about you and your family are true, then it is probably a good idea for you to consider life insurance.

1) You are married and have a spouse.

2) You have children who are dependent on you.

3) You have a parent or relative who is aging, or disable and depends on you.

4) You have a loved one in your life that you wish to provide for.

5) Your 401K retirement plan, pension and savings aren’t enough to insure your loved one’s future.

What Are My Life Insurance Options

There are four basic types of life insurance that can meet you and your family’s needs:

Term Life Insurance

This is the least expensive type of life insurance coverage, and at least at the beginning, the simplest. Term life insurance policies do not accrue cash value, and are fixed over an extended period of time – usually one to 0 years, and they can be renewed. This life insurance policy pays the beneficiary of your policy a fixed amount in the even that you die in the period of time that your policy includes. The premiums of term life insurance are lowest when you are young and increase as you get older

Whole Life Insurance

This type of life insurance is similar to term life insurance, as well as provides cash value. Over time, whole life insurance generally builds up a cash value on a tax-deferred basis, and some even pay it’s policy holders a dividend. This type of life insurance is popular, doe to the cash value that is accessible to you or your beneficiaries before you die. Used to supplement retirement funds, or to pay for your child’s education, whole life insurance should be used for protection, rather than for accumulation.

Universal Life Insurance

This type of life insurance is a flexible kind of plan. These policies accrue interest and allow the owner to adjust the death benefits and premiums to their current life situation. You decide the amount of premium for universal life insurance, and of you skip a payment, this will be deducted from your death benefit. Universal life insurance stays in effect as long as your cash value can cover the costs of the policy. These rates are subject to change, but they can never fall below the minimum rate that is guaranteed when you sign up for universal life insurance.

Variable Life Insurance

This type of life insurance is designed for people who want to tie the performance of their life insurance policy to that of the financial market. The policy holder gets to decide how the money should be invested, and your cash value has the opportunity to grow more rapidly. However, if the market is poor, your life insurance policy’s death benefit will be poor. As with whole life insurance and universal life insurance, you may withdraw against the cash value. Be reminded that withdrawals of this life insurance policy will be deducted from the cash value.

How Can I Save Money With Life Insurance

Below you will find some suggestions on ways to save money while purchasing the life insurance policy that is right for you.

1) If you don’t need life insurance, don’t buy it. Don’t buy more insurance that you actually need in order to provide financial security for your family.

2) Shop around for competitively-priced life insurance policies while you are healthy. Don’t smoke, or do anything that might increase your rates. Take care of yourself by exercising regularly and maintaining a moderate and healthy weight.

3) If you purchase a term life insurance policy, look for guaranteed and renewable policies. That way you won’t have to periodically continue to shop around for those life insurance policies.

4) You should only buy optional forms of coverage such as riders only if necessary.

5) Shop around and compare life insurance policy rates and coverage. There are thousands of life insurance companies to choose from. It is advised that you get at least three separate quotations of life insurance, and then decide which is the best for you.

Buying Life Insurance: 3 Quick Pitfalls to Avoid

It’s no secret that the majority of Canadians today don’t really understand the life insurance policies they own or the subject matter altogether. Life insurance is such a vital financial tool and important part to your financial planning that it is incumbent upon you to have a basic level of understanding.

Here are 3 quick pitfalls that are important to be aware of.

Incomplete Details In The Application

All life insurance contracts have a two-year contestability clause which means the insurer can contest a submitted claim within two years of the application date if material information was not disclosed during the application process. If you have forgotten to note a relevant fact in your application pertinent to the claim it is possible that your claim could be denied. Fraudulent acts such as lying in the application would not only have a claim denied but possibly also have your policy rescinded entirely. It goes without saying that one should always be truthful when completing a life insurance contract or any insurance contract for that matter. A copy of the original application often makes a part of the policy and generally supersedes the policy itself. Having-said-that, each insured has a 10-day right to review their policy once they receive it. In that time period if you feel the policy is not up to the standard you thought it to be, you can return it to the company and all premiums paid would be refunded

Buying The Right Term Coverage For Your Situation

This process should first start with a question: “What do I need the insurance for?” If your need is to cover a debt or liability then perhaps term is best however, if your need is more long-term such as for final expenses, then permanent or whole life would be a better fit. Once you have established your need you’ll then have to decide what type of coverage you want; term or permanent.

Term contracts are the simplest to understand and the cheapest because there is an “end” to the policy; generally 5, 10, 15, 20 sometimes even up to 35 years. If the policy is renewable an increased premium will be required come the end of the term and this is often a big shock to the client’s bottom line. As an example: a 35 year old male, non-smoker with a 20-year term and 300k benefit may pay anywhere from $300 to $400 per year in premiums. When this policy renews at age 55 his new annual premium could go as high as $3,000 per year! Most people don’t understand this and come term end are devastated, generally unable to continue the policy. It is recommended that your term program have a convertibility clause so that you have the option of converting your term life into a permanent policy. You can exercise this right at any time within the term of the policy without evidence of insurability. Taking a term policy without a convertibility clause should only be done when making your purchase for something of a specified duration. Also, the short side to term life is that it does not accumulate any value within the policy whereas permanent/whole life does.

Permanent/whole life is a very complex from of life insurance because it has both insurance and investment aspects to it. These policies are most beneficial because you have value built up in the policy and you are covered until death however, they are much more expensive than term insurance. An option that you can consider is a permanent policy with a specified term to pay it. Using our previous example, you could have a permanent policy that has a 20-pay term meaning you will make premium payments for the next 20 years and after that you will have your policy until death without ever making another payment towards it. It is very important to understand the variables along with your needs before you make your purchase.

Buying Creditor Life Insurance vs. Personal Life Insurance

One of the biggest misconceptions people have is that their creditor life insurance is true personal life insurance coverage and will protect their family in the event of their death. Far too often consumers purchase these products, generally found with their mortgage and credit cards, by simply putting a checkmark in a box during the application process agreeing to have the plan. It sounds like the responsible thing to do but many families are left in paralyzing situations come claim time. Creditor life insurance, such as mortgage life insurance, is designed to cover the remaining debt you have. Making timely mortgage payments is ultimately declining your remaining balance. Creditor life insurance also declines as your debt declines. Keep in mind that the lender is named as your beneficiary in your policy so consequently, upon death your remaining balance on your mortgage or credit card is paid to the lender, not your family. In a personal life insurance policy you choose the beneficiary and upon death the full benefit amount is paid to the beneficiary of your choice.

Personal life insurance is a great asset to have for a large number of reasons. When you buy life insurance your buying peace of mind but, you must have your situation properly assessed and be sure that you are clear on exactly what it will do for your family.