If you’re considering investing in life insurance, one of the first things you’ll need to consider is the type of policy you’ll require. There is a wide range of different options tailored to suit differing individuals and demands. In this article, we explore a range of different types to help you determine which is best for you.
Whole of Life (or Permanent)
This option does precisely what it says on the tin. Usually provided at a fixed-rate, whole-of-life insurance lasts throughout your lifetime and pays out after you die – whenever that may be. Policies of this kind tend to be among the most expensive, but they provide a great amount of security.
Usually more affordable and flexible than whole-of-life coverage, a term policy will only pay out if its subject dies within a set amount of time. You can purchase 1- or 5-year term insurance – which is renewable – or arrange for longer terms including 10, 15, 20, 25 or 30 years. Otherwise, you may request a term-based policy that covers you up to a particular age.
An offshoot of the above type of insurance, an increasing term policy sees the potential benefit rising year on year. Sometimes this requires the holder to pay gradually increasing premiums, sometimes not. This option helps you to make allowances for growing assets or inflation. If you’re considering a product of this kind, you might wish to look into a Modified Endowment Contract (MEC). This is an arrangement whereby – if an excessive number of premiums are paid into your policy within the first seven years – you may be able to leave a greater tax-free amount to your beneficiaries.
If you’ve applied for insurance to cover the payment of a mortgage in the event of your death, you may decide to opt for a decreasing term policy. Because the size of your mortgage will decrease with time, it’s fitting that your coverage does too. This type of fixed-period coverage usually offers lower premiums than many others.
Death in Service
Some companies offer death in service coverage. This means that if you die while on the payroll at the job providing the coverage, your beneficiaries will receive up to five times your salary. This product is often cheaper than other available policies, but it is rarely available to cover mortgages and will end if you leave your job.
This type of coverage most commonly applies to married or cohabiting partners, and pays out upon the first death to occur between the couple. If there is one clear breadwinner, it may be best to opt for individual policies. However, if both earn a significant proportion of their shared wealth, a combined arrangement may be preferred. Some of the types of coverage listed above are renewable, while others end completely after a fixed term. Speak to your broker about your options and make your requirements clear before coming to a decision. The product you choose should directly reflect your needs.