What are the different types of life insurance?

Term life insurance gets its name because, in return for you paying monthly premiums, it provides you with life cover for a set period of time, or ‘term’. Monthly premiums for this type of life insurance will be higher the older you are, if you are a smoker or if you have a serious medical condition such as heart disease or diabetes – as depressingly the insurer will assume that there is a higher likelihood of you dying during the set period of cover than a younger, non-smoker with no medical conditions.

This type of life insurance policy is often taken out alongside a mortgage so that if you die during the mortgage term, your life insurance policy will pay off your mortgage.

There are three types of term life insurance cover you can choose from:

Level payout – this is where you maintain the same amount of life cover over the policy term which means you’ll receive the same fixed sum whether you died at the beginning or end of the policy term.

Decreasing payout – this type of life insurance is where the amount your loved ones would receive gradually reduces over time. This is a cheaper option than a level payout, as the level of cover reduces over time. Which means that it can be a popular option if you’re on a tight budget and are buying life cover specifically to cover your mortgage, as the amount of any payout reduces in line with the amount you owe on your mortgage.

Increasing payout – there’s also the option of an increasing payout, which means any payout rises in line with inflation. This can provide peace of mind that if, for example, you are taking out life insurance to help provide an income for someone – if you were to die a couple of decades after taking out cover, the payout will have grown sufficiently to keep up with rising living costs. As you might expect, your premiums will usually increase as the amount of cover you have goes up.

With term life insurance, you’ll only receive a payout if you die during the policy term. If you die when your policy has finished, you won’t receive anything despite the fact you’ve paid premiums for many years, so if you want to remain protected you’ll need to take out a new policy to cover you after the term ends. Cover will usually be more expensive at that point as you’ll be older, and premiums could be much steeper if you’ve developed any health issues, unless you opted for a renewable term insurance policy when you first bought cover. This means you’ll be able to renew your cover without going through another health check.

When buying term insurance, you’ll usually be offered the choice of guaranteed or reviewable premiums. If you choose guaranteed premiums, your premiums will remain the same through the term of your policy, whereas reviewable premiums usually start at a lower level but then increase during the term of your cover.

Author: wpadmin

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