Types of life insurance

20 July 2018

There is more than one type of life insurance, so how do you know which policy is right for you? To the uninitiated, the variety of life insurance policies that are available can make picking the right one a little daunting. In this article, we’ll explain the main types of life insurance and what kind of customer they might be best suited to.

Life insurance explained

Life Insurance is a financial product that could mean your loved ones receive a sum of money if you were to pass away while covered by the policy. In broad brushstrokes, there are two main types of life insurance you need to know about: term life insurance and whole of life insurance.

As a rule of thumb, term life insurance provides financial cover against death for a set period. As the applicant, you choose how much cover you need, and the duration of the policy length, which may cover the length of a mortgage, or other life milestones like your children’s school years. With this type of life insurance, you will only receive your payout if you pass away or have a qualifying terminal illness during the chosen term.

In contrast, whole of life insurance provides lifetime coverage, which means your loved ones will receive a payout whenever you die. The cost of this type of life insurance will reflect that fact that the provider will expect to pay out on a valid claim.

This article focuses on Life Insurance. As we will explore, there are different types of life insurance witin this category to meet different needs.

Types of term life insurance

Here is more information about the main types of term life insurance:

Decreasing term life insurance
For many people, the first time they think about life insurance is when they first take out a mortgage. In this instance, you could choose a term duration that covers the length of your mortgage repayments, as once the mortgage has been paid off you may not have a need for life insurance to protect it. Decreasing term life insurance, sometimes known as mortgage life insurance, means your cash sum decreases roughly in with the way a mortgage decreases. The upshot is that you can choose the exact amount of cover for your needs, and the premiums are lower, due to the fact the cash sum reduces over time.

Level term life insurance
For many households, a ‘level’ policy is the best type of life insurance as the cash sum stays the same throughout your policy term, and your monthly premiums will remain the same unless you make a change to your policy. With level term life insurance, the cash sum could be used to cover childcare costs, school fees or unpaid bills. If your children, partner or other relatives depend on you financially and your parental responsibilities, this type of policy could help financially protect your family if you passed away.

Increasing term life insurance
Perhaps one of the lesser known types of life insurance policy is ‘increasing term life insurance’. This means you pay higher premiums over the length of your cover but your cover amount is reviewed against measures of inflation, or a fixed rate so it rises over time. Premiums are normally reviewed annually or at set yearly intervals. This type of life insurance is normally designed to protect against inflation and the rising costs of living.

Other types of term life insurance

In addition, you may hear the term renewable term insurance, which means you can extend your term without having to undergo a new medical examination, or new underwriting. With this type of life insurance, you may have to pay higher premiums as you get older, and there will be a renewal limit. If your term life insurance can be converted into a whole-of-life arrangement, then you have a convertible life insurance policy.

Get the right life insurance for you

Ultimately, the best type of life insurance is the policy that matches you and your loved one’s needs, providing the right amount of cover at a price you can afford.

Decreasing Life lnsurance (decreasing term) and Life Insurance (level term) are the polices that we offer.

Find out more about Life cover