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Life insurance is going to be more suitable for some people than others but it is never too early to start thinking about how you and your loved ones might cope should become unable to work or, in the worst case scenario, pass away. Indeed, In most cases you will get a better premium the younger you are.
Life insurance can benefit anyone, deciding which form of insurance is right for you something you should consider carefully.
There are different types of life insurance depending on your circumstances. All life insurance policies fall into two basic camps; ‘term’ insurance and ‘whole of life’ insurance.
As their names suggest, the key difference between them is that one applies only for a set term, the other provides cover for the whole of the policy holder’s life.
Within the category of ‘term’ policies there are a number of different variants you may wish to consider.
This type of insurance offers a fixed payout agreed upon when you buy the policy and lasts for a set number of years, normally 10, 15 or 20, after which you will need to buy another policy if you want continued protection.
These policies tend to be relatively cheap and your premium payments stay fixed throughout, however, you should remember that ideally you want to survive the term! If you want to take out more insurance once the term ends and you’ve passed middle age it can be considerably more expensive, especially if you health worsens.
As well as price, you should always check how easy your insurance will be to renew once it runs out, or you may risk being left out in the cold.
This form of life insurance also applies for a fixed period, however in this instance the premium you pay will normally stay fixed, whilst the level of cover of receive gradually decreases.
Why would, you want this? Surely you’ll want more cover as time goes on, not less? Whilst, in many cases, this may be true, for others the key reason for getting life insurance is to provide financial protection for their children, or to cover their mortgage payments in their absence should the worst happen.
As time goes by the amount left to pay on your mortgage will decrease and your children will also become less dependent on you for money, therefore, the longer you hold the policy, the less cover you actually require. Decreasing cover policies are designed to reflect this fact.
As discussed above, conventional wisdom says that the older you get, the more life insurance cover you’ll want. This is the thinking behind increasing cover life insurance plans.
Again, these policies apply for a fixed term only, but for the duration of that term the premium you pay and the lump sum you can expect to receive both increase according to a prescheduled plan.
This allows you to continually up your level of cover without any of the hassle of switching plans or, more importantly, having to take a medical (until the term runs out, that is.) This can end up saving you money if your health should decline, as your payments increase in line with the scheduled plan, not the state of your health.
Aside from policies which cover you for a set period, you can also take out plans designed to provide cover for the entire duration of your life.
The premiums for whole of life policies tend to be higher than you would pay for a term policy and, often they will gradually increase as you get older.
However, as the policy lasts for the whole of your life, you never need to worry about renewing or being left in a situation where a health condition makes it hard for you to find insurance.
Another major advantage of such a policy is that you have the assurance that your investment in the policy will eventually pay off. Obviously, when you take out a policy that only applies for a set term, you hope to live longer than the policy is valid for. However, in doing so, you effectively lose your investment.
With whole of life insurance the opposite is true. Indeed, as they are guaranteed to pay out eventually (unless some from of exemption comes into play) many policies actually build up a cash value overtime that you can trade in, invest or even borrow against.
Joint policies are a popular choice amongst many couples. However, we would suggest getting two separate policies instead, as you’ll get twice as much cover, normally for much less than twice the price.
Remember, if you opt for a first claim joint policy, there will only be a pay out for the first death (or instance of critical illness if you have that eventuality covered.) Imagine the effect this would have if you were to both die at the same time…
Further complications can arise from the fact that, usually, only the spouse can claim on such a policy. This can mean that, if your death came as a result of criminal activity by your spouse, there would be no pay out. It would be illegal for them to claim, and nobody else would be permitted to.
While life insurance covers your loved ones in the event that you die, if you are struck down with an illness or condition that leaves you incapable of working (and is on the list of accepted critical illnesses on the insurance document), the insurer will pay out the agreed sum.
In many cases you can simply add critical illness cover to your life insurance plan. This can be a sound financial investment. Imagine if, due to a critical illness, you were unable to work and could not keep up your life insurance payments. You might end up invalidating your policy due to the very illness that makes your life insurance so vital.
As well as critical illness cover you can always get ‘waiver of premium cover’ which protects against the situation described above by allowing you to go without paying your premium if you are debilitated by a non-fatal condition.
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