Taking out a mortgage, getting married, or having a baby – these are all things that could make you seriously start thinking about life insurance. In this post, you can learn exactly what life insurance is and the different types of life insurance policies. We’ll also discuss who may be best suited for which type of policy.
What is life insurance?
Life insurance is a type of insurance policy where the insurer promises to pay an assigned beneficiary a lump sum when the policyholder dies. Some policies may pay out early if the policyholder is diagnosed with a terminal illness. The main benefit of life insurance is that it gives you peace of mind that your loved ones will be financially secure when you pass away.
Types of life insurance
There are different types of life insurance. Term assurance is one of the most popular, which is where you insure yourself for a fixed sum over a set period. For example, you might be insured for the next 25 or 35 years only.
If you pass away within the insured period, your beneficiaries will be paid an amount depending on the terms of your policy. But if you survive the insured period, you are no longer insured and you aren’t refunded any insurance payments.
Term assurance can be further subdivided into level term, decreasing term and increasing term life insurance. Level term insurance is when your beneficiary will receive a fixed amount no matter at what point you pass away within the insured period.
Decreasing term insurance is when the amount that would be paid out upon death decreases over the insured period. Whereas increasing term life insurance is when the potential payout increases over time to combat inflation.
You can also get whole-of-life insurance, which does not include an insured period. This means the policy is guaranteed to pay out at some stage and is therefore a little more expensive.
Is life insurance only available to people with children?
You can take out life insurance whether you have children or not. Having children is often what makes people start thinking about life insurance, but you don’t need to have kids to take out life insurance cover.
How does a life Insurance payout work?
Your beneficiaries will need to contact your insurer after you pass away. They’ll need to inform the insurer that you have died and provide them with a copy of the death certificate. The insurer will then pay the beneficiaries what they are owed as per the terms of the insurance policy.
For this reason, it’s best to make your life insurance policy details known or accessible to your beneficiaries. Alternatively, they can be added to your Last Will and Testament.
What life insurance is best for me?
The best life insurance policy for you will depend on your specific circumstances and your long-term financial obligations.
For example, if you have a larger household debt that will get smaller over time- such as a mortgage - you may be best suited for a decreasing term policy. On the other hand, if you have no major household debts but want to ensure the amount your insured for is safeguarded against inflation, you may want to consider an increasing term policy.
Our insurance brokers will be happy to discuss your situation and life insurance aims with you. We’ll provide further details on all your options and help you secure the most suitable policy for you and your loved ones. Get in touch now.