A view of life insurance policies

At times, the different names given to life insurance policies can be a little confusing.

The Basics of life insurance protection

The essential core of life insurance is that is will pay out a sum in the event of your death.

Within that basic principle, there are many variations of product available on the market.

Perhaps the two most common forms of life insurance are (the terminology may vary between companies):

• term
• decreasing term.

Both of these may be sold either to individuals or they can be purchased by companies and provided to employees as a corporate life insurance benefit.

Term life insurance

These policies are the traditional forms of life insurance.

For a fixed premium payment each month, the insurer will pay out a guaranteed lump sum benefit in the event of your death during the term of the policy.

The term of the policy is the period of cover you sign up for – typically anywhere between 10 and perhaps 25 years.

During the term, both the sum insured plus the premiums stay the same.

Decreasing term life insurance

These types of life insurance policies are typically associated with protecting your mortgage.

Typically the premium payments remain the same but the sum payable in the event of death decreases over time. That’s because it is intended to cover your mortgage and the outstanding balance on that will also decrease over time.

Health status

Contrary to some popular myth, you don’t have to be in perfect health to obtain life insurance protection!

Insurance providers typically understand that many people suffer from minor ailments and some from more serious conditions.

What is required is that these are fully declared when you’re initially applying for the policy. The insurance company will use this to calculate their premium.

If an existing condition is serious enough, you may be declined cover or accepted but on special terms.

Typically, most insurance providers will be happy to talk you through the issues and options in such cases.

Protection

You can typically add critical illness insurance to a life policy to provide a more rounded form of protection against life’s uncertainties.

So, in spite of what you may have feared, life insurance policies (with or without critical illness cover) are not unduly complicated!