Life Insurance - A Beginner’s Guide

When it comes to life insurance we have two primary types of policy to choose from – term life insurance or whole of life insurance. Many people find it hard to come to a decision about which type of policy to take out but the decision you have to make really isn’t that complex and both will offer good levels of cover for the majority of people. Let’s take a closer look at your options.

The most popular type of life insurance is, without a doubt, term life insurance. This kind of policy will be set out to last for a specified ‘term’ – i.e. it will last for a set time period. So, you can take out a life insurance term policy for 25 years, as an example. During this 25 year period you will make your policy payments and you’ll have the protection of the policy if you die. So, your next of kin can claim against the policy in the event of your death. But, at the end of the 25 years your policy will be finished and you’ll get no further protection from it.

Many people opt to take out a term life insurance policy because they know that they will no longer have a great need for insurance at the end of the specific term. For many people this kind of policy will end at around the time that they retire so their mortgage will probably be repaid, their families will be grown and they won’t need to make provision for their family to have such a large lump sum or income if they die. So, a term policy can suit them very well indeed, giving them cover during the years when they really need it and finishing when they don’t.

A whole of life policy, on the other hand, will suit those of us who want protection for the rest of our days. This kind of life insurance is designed to last until you die – so you’ll be covered in the short, medium and long term. A lot of people who opt for this kind of life insurance do so because it can be set up to help with issues such as inheritance planning, although many people simply prefer to get cover that is guaranteed to make a payment at some point so that they feel that they are getting some return on their policy payments. There is a guarantee of payment with a whole of life policy that isn’t there with a term policy. Once your term policy is finished that really is it – you are only guaranteed a payment if you do die while the policy is in force.

Many people make their choice here based on their budget. The fact that a term life insurance policy may not ever make a payment (i.e. the fact that you will probably survive your policy) means that insurers can offer lower costs. A whole of life policy – with its guaranteed payment at some point – is consequently more expensive. The choice you make here will be a personal one and may well depend on your financial circumstances. The vital thing to remember is that some form of life insurance cover is vital for most of us – especially if we have a family to consider and we can consequently get great protection from either kind of policy at the end of the day.