The theory of life insurance is a simple one, pay a small amount each month over a set term, and in the event of a crisis or tragedy, you family and beneficiaries are given a coverage to assist with the transition into living without you.
There are a myriad of insurance products available, and having an understanding of the basic insurances allows you to invest in the best options for your family. The four most common insurances sold as premiums are Term Assurance, Whole Life, insurance that protects against Accidents and Sickness, and an Income Protection insurance.
As its name implies, Term assurance is a premium that is paid over a set term. The term rate is determined by the age of the insured, and the length of time that they are insured for. Premiums are paid to a leveled term or as decreasing term. In a leveled term assurance policy, the payment is the same throughout the lifetime of the insured, while a decreasing term has lower payments as the insured party ages, however the payout also decreases.
The catch to Term Assurance plans is that they only pay out on death. If a person survives for the duration of the term of assurance, they receive no payout, and no interest on their investment.
Whole Life Assurance
Whole Life, or whole of life assurance, provides a guaranteed payment at death, providing premiums are up to date. Premium rates are renewable, usually on a ten year term, so the premium is not fixed. Whole life assurance provides a method to profit in the long term investment through either a with profits assurance plan, a unit linked plan, and a universal assurance plan.
A with profits plan costs a bit extra to participate in but in the long term can lead to higher payouts. For a slightly higher premium, the assurance policy participates in investment activities and is given a yearly bonus to the payout amount. Over time this can lead to a significant increase in the payout at death to your beneficiaries.
A unit linked plan is a little more complicated. A unit of investment is purchased, and every month, the cost of the life insurance cover is deducted from the unit value of the investment. It’s a little complicated but it comes down to a unit linked plan being both a life insurance policy and an investment vehicle. Similar to a with profits plan, rates fluctuate and the policy is usually re-negotiated after 10 years.
Accident and Sickness
A less prevalent insurance product, Accident and Sickness has its place for people in the work force. Characteristics of this type of insurance product are yearly renewals, lump sum payments, or deferred payments over a set period of time, usually weekly in the case of sickness, and the right of refusal ability.
Right of refusal means that the plan can be examined by the insurer at any point that there has been a change of circumstance, and they can then increase premiums or even refuse to renew the policy. This type of insurance is good for supplementing an income that would be lost due to an accident, something workers in the construction trade should consider.
Similar to Accident and Sickness, Income Protection insurance provides a guarantee of a replacement income, should you exhaust sick benefits or are not able to return to work for a long period of time. The factors that insurers consider when putting this type of policy in place are things like age, gender, physical condition, and likelihood of becoming ill.
The total amount of coverage is not exhaustive, and usually supplements income up to 60% of the value of your weekly income, so by no means is it a long term protection. Its role is to provide a cushion and allow you to recoup and start again in the event of an illness.
Knowing the right product for your needs will make sure you choose the best insurance product at the bet rate possible.
With his background of a finance journalist Terry McBrearty has written many in-depth and factual overviews of the leading insurance companies like Legal & General . You can read some of his latest articles about life assurance on http://www.lifeassurancequotes.org.uk .