Articles

A life insurance policy (sometimes referred to as life assurance) is a contract between the insurance provider and the owner of the policy. It is a contract because the insurer undertakes to pay a designated sum of money to the beneficiary in the event of death or, sometimes, terminal illness. In return, the owner of that policy agrees to pay a certain amount on a regular basis (premiums) or in lump sum.

Most people may find themselves asking ‘Why should I take out life insurance’. Well consider some of the consequences if the unfortunate should happen. Who is affected? How will your family be provided for once you are gone? What financial state will they be left in?

A person intending to take up a policy should have a clear understanding of the different types of policies available before finally making their choice. Outlined below are some of the types of cover available:

Term Insurance

Generally the most basic and least expensive cover offered to an individual. Although the policy is only offered for a fixed term, typically 1 to 10yrs, it can be renewed once it has expired. It pays a death benefit only if the policy owner dies within that term. This type of policy has lower premiums in the early years but is not redeemable for cash. However, the policy holder should take note of the new premiums during renewal as these are likely to be higher than the previous premiums.

Whole Life

As the title suggests, this cover offers permanent protection and guarantees payment in the event of death. The policy will pay out an agreed sum when you die as long as you have paid the premiums. This type of cover is generally more expensive when compared against other types of cover.

Mortgage Protection

This life insurance policy is specifically designed to cover your mortgage payment and is one of the most common. In the event of your premature death your policy stipulates that your mortgage payments will be continued to help ensure your family’s financial security.

Some banks and building societies will only offer finance if a mortgage protection policy is taken out, so that their own investment is protected.

Critical Illness Cover

A critical illness plan provides protection if you fall ill to a defined list of critical illnesses. The seven core illnesses covered by most policies are cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke.

It is important to be completely transparent when opting for this type of cover as any underlying conditions that are not disclosed may result in your insurance policy becoming void.

Universal Life Insurance

This is a more flexible policy that allows the policy holder to vary their premium payments. Variable life insurance is a policy where portion of the premiums are invested in a number of investment vehicles such as mutual funds and any other specifically allowed on the policy document.