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Life insurance
is designed to pay out a lump sum if
you die so that those you leave behind
won’t suffer financially. There
are different sorts of life insurance
available and the amount of cover you
choose really depends on your personal
circumstances. For example, a single
person in their 20s with no dependants
may decide that they don’t need
any life cover while someone who is
the main wage earner and supports a
family will probably feel very differently.
Term insurance
This is the most common type of life
insurance. It covers you for a fixed
period (or 'term') and for a specific
sum, which you decide on depending on
your circumstances. A lot of people,
for example, choose to insure themselves
until their children are at an age when
they should be able to support themselves.
The amount you
pay for term insurance depends on:
- How much
cover you want and for how long
- Your sex
(men tend to have higher premiums)
- Whether
you’re a smoker
- Your health
and medical history.
There are two different
sorts of term insurance:
- Level
Term - which means the amount
of cover paid out on a claim statys
the same throughout the term of the
policy; and
- Decreasing
Term - which means the amount
of cover decreases. This is often
known as Mortgage Protection Insurance
because people use it to cover the
cost of their mortgage if they die
before it is paid off. The further
into the term of the mortgage you
get, the less cover you need if you
are paying off the capital of the
loan as you go along.
You can also get
policies where the amount of cover rises
each year, for example, to keep up with
increases in the cost of living over
time. These are known as inflation-linked
term assurance policies and can be used,
for example, to make sure the amount
of protection needed to bring up a family
rises each year with the cost of living.
The difference
between term insurance and whole of
life insurance
Term insurance should not be confused
with whole of life insurance, which
usually combines life insurance cover
with some sort of investment. Unlike
term insurance, which runs for a set
period and won’t pay out any money
if you die after this time, whole of
life insurance guarantees to pay out
a ‘sum assured’ when you
die. The 'sum assured' may be reviewed
during the policy's term.
Why
do people take out whole of life assurance?
- To ensure
there is enough money to pay funeral
and other final expenses
- To provide
an inheritance
- To provide
cover in retirement.
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