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When buying
life insurance its vital you get the right policy for your
needs. With a plethora of web sites offering discount life
insurance, it’s often easy to end up with a policy that is
not suited to your unique needs and circumstances.
One of the
questions that arise time and again is whether a term life
policy or a whole of life policy is best, and what’s the
difference between them.
Term Life
Insurance Benefits:
Term life
insurance is a bit like leasing a car. You pay cover for a
predefined term, and are covered for that term. However, at
the end of the term, whether for example its 15 years or 30
years the deal is done and you simply walk away. This means
that term life insurance only offers protection for the
duration of the mortgage, and is usually of little value
once your mortgage is fully paid off.
Term insurance
is generally cheap and is expected to fall over time
providing you don’t suffer from a major disease. However,
there are a number of different types of term life insurance
policy.
The first is
known as level term cover, and it’s the most common
type. With this form of policy the premium costs are locked
in for as long as you hold the policy. In other words, you
will pay the same amount throughout the entire term of the
policy.
Unfortunately,
it means that as time goes by you could end up paying more
for your life cover. However, the nice thing is that you get
the benefit of paying at today's rates. However, bear in
mind that over time these rates could fall instead of rise.
The second
type of term life cover is known as escalating term
insurance. This type of scheme means that you pay an
increasing amount each year, so the payout at death also
increases. They are generally low cost policies, and are
more suited to first time buyers and the young. However,
they can become more expensive as you get older.
The third type
is known as decreasing term insurance. In this case
your monthly payments will stay the same, although the
amount of cover you receive will reduce each year.
The forth type
of term life policy is known as increasing term insurance.
With this type of term life insurance the benefit on death
increases. However, in order to make up for this increase
you will need to increase your premiums at certain times,
for example on the birth of a child, or as your financial
circumstances improve.
The fifth and
final type of term life insurance is known as convertible
term insurance. This type of term life policy provides a
way for you to convert your policy into an
investment/insurance policy in the future. With this type of
policy the price of your future investment policy is based
on your health when you bought the cheaper term insurance.
Whole of Life
Insurance Policies:
Whole
of life cover covers you right up until your death.
Provided, of course, that you keep paying your premiums! It
can pay out a substantial benefit to your loved ones when
you die, and it can also accumulate a cash value over time.
This
type of policy is more expensive and complicated than term
life policies. The investment you make earns some interest
each year. So, providing your investment grows, your annual
premiums can actually reduce over time. Also, there may come
a time when the interest produced can cover all your future
premiums, and as a result you may have no more premiums to
pay on your policy.
However, it’s important to understand that the final
cash-in-value of a whole of life policy may or may not equal
the amount of money that has been paid into the policy over
it’s full term.
Summary:
When
it comes to the decision of whether to choose a term life
policy, or whole of life insurance cover, the ultimate
decision must be guided by your individual needs.
The
simplest form is a level term policy with a renewable
option. This will allow you to get life insurance for as
long as you may need it.
However, you may prefer a policy that offers a growing nest
egg, that pays out while you are still around to enjoy it!
Both types have their advantages and disadvantages, and
careful consideration and advice from a competent insurance
adviser is vitally important. |
