If you have any dependants—whether children, elderly parents or a disabled relative—it’s important to have some form of life insurance so they can be provided for if you’re not around. The problem is that it’s such a complicated (and potentially expensive) subject that people often don’t bother—simply because they don’t know where to start.
So here’s a list of the basic types of life insurance (also known as “assurance”) available.
- Level Term insurance. Generally the cheapest and simplest option. Sometimes called “protection only”, it guarantees to pay out a set amount if you die within a certain time. You contribute a fixed premium each month, but the insurance only pays out in the time agreed. So if you live longer than that, the insurance company won’t pay. At that point, you’ll have to negotiate another deal—and it could be a lot more expensive, as you’ll be older and potentially have more health issues.
- Increasing Term Insurance. This type of insurance increases the level of cover over the years without the need for a medical. At the same time, the amount you pay also increases.
- Decreasing Term Insurance. Here, the premium remains constant, but the payout decreases over the life of the policy at a predetermined rate.
- Renewable Term Insurance. A short-term policy that can be renewed at the end of the term without having to go through a medical. It’s often significantly cheaper than other forms of life insurance, because it lasts for a shorter time.
- Joint Life insurance. Don’t forget that you can insure your partner as well and get a joint policy. Even if you’re the sole breadwinner, the costs of home or childcare will still need to be addressed if your partner or spouse passes away. It doesn’t make sense to leave just one of you protected. Joint life, or first-death, policies initially cover both parties, but pay out after one partner dies, leaving the other one uninsured. Joint policies are generally cheaper, but separate policies can be less complicated, especially when it comes to inheritance tax—or if you should divorce or separate.
Many life insurance policies also offer the option of built-in critical-illness cover. This can be very helpful, as there may be times when you are ill yourself and unable to provide for others.