How To Choose The Right Life Insurance Policy

Title:
How To Choose The Right Life Insurance Policy
Word Count:
1204
Summary:
Life insurance � what is it & how does it work?
Life insurance is the simplest, most popular and cost effective way to financially
protect any dependants in the event of your death. While it won�t help those left
behind to get over their loss, the benefit of a lump sum, in most cases tax-free,
will guarantee your family aren't deprived of funds during an already stressful
time.
With the cost of life insurance at an all time low, now is the perfect time to
arrange cover....
Keywords:
life insurance
Article Body:
Life insurance � what is it & how does it work?
Life insurance is the simplest, most popular and cost effective way to financially
protect any dependants in the event of your death. While it won�t help those left
behind to get over their loss, the benefit of a lump sum, in most cases tax-free,
will guarantee your family aren't deprived of funds during an already stressful
time.
With the cost of life insurance at an all time low, now is the perfect time to
arrange cover. For those in good health, a policy that was taken out six years ago
can be replaced today for significantly less, despite the fact that being older,
one is in theory at greater risk. The industry over-reaction to the threat of AIDS
initially caused premiums to rocket skywards, but when the expected epidemic failed
to materialise, costs fell rapidly from the mid 1990s onwards.
Life insurance premiums vary from person to person, with factors such as age,
gender, current and previous health, lifestyle, term required, occupation and
smoker status all having an influence. Risk is assessed with the use of what�s
known in the industry as �mortality tables� to determine the premium for a
particular individual, to which a 'loading' may be added which takes further
account of other factors relating to medical history and lifestyle.
Whole of life versus term life insurance
Life insurance can be split into two main types, known as �whole of life insurance�
and �term life insurance�. In essence, as the name suggests, whole of life
insurance provides cover for the lifetime of the policyholder, whereas term life
insurance provides cover for the duration of an agreed period in time. For all
policies it�s crucial to ensure that premium payments are kept up to date to keep
cover in place.
Whole of life insurance
Whole of life insurance tends to be the more expensive option, though often has the
advantage of being more flexible. It can fulfil many purposes including personal
protection, family protection and inheritance tax planning, and can be combined
with a term life insurance policy to cover specific debts as required.
Typically, policyholders' contributions are invested and life insurance benefits

are 'purchased' using the investment fund. The fund�s performance, along with other
factors, has a significant effect on the level of future benefits. As the
policyholder�s age increases the cost of the insurance increases, thus reducing the
sum in the investment pot. The investment element varies from insurer to insurer;
some are more generous payers than others, making the expert advice of an insurance
broker or independent financial adviser invaluable in choosing such a policy. Some
plans require contribution until the policyholder�s death, some for a set period of
time, and some up until a certain age is reached, with additional options available
to cover specific illnesses or disability. The common factor throughout is that
cover is maintained for the life of the policyholder, making whole of life
insurance a very popular way to leave dependants a nest egg.
One great benefit of whole of life insurance is that the guarantee of a payout on
the policyholder�s death, at whatever point in time that may be, removes much of
the guesswork involved in other types of life insurance. As long as premiums are
maintained, cover is assured. Although the more expensive option, it�s important to
note that premiums are lower than those one would pay in later life by repeatedly
renewing term life policies.
Term life insurance
A simpler option, term life insurance offers basic cover for a set number of years,
usually at low cost. A term life insurance policy requires a regular premium
payment and pays out a lump sum on the policyholder's death providing this occurs
within the term of the policy. Death outside of the term to which the policy
applies won�t result in a payout, meaning the loss of any investment made, making
it particularly important to be sure that cover is adequate and the term is
appropriate.
Some policies can be extended to provide critical illness cover; full disclosure of
all medical conditions, existing and historic, is vital when arranging this to
avoid a denial of payment just when it�s needed most. It�s also imperative to be
certain exactly which conditions the policy covers, as insurance companies are
notoriously specific as to the illnesses they�ll pay out for!
Term life insurance cover can be further categorised into these types:
Flat-rate (or level) cover - offers a set amount of cover for the policy term,
fixed from the outset.
Decreasing (or mortgage protection insurance) cover - cover decreases over the term
of the policy, often inline with a diminishing mortgage debt.
Family income benefit � pays out a regular income rather than a lump sum during the
policy term.
Increasing term assurance - premiums and benefits increase each year, usually in
line with inflation, allowing the protection of a lifestyle.
Convertible term assurance � gives the option to convert to a whole of life policy
without giving new information about your health.
How much cover do I need?
It�s important to correctly identify your dependants� financial needs to establish

just how much life insurance cover to arrange. A general rule is to choose a policy
providing at least ten times your salary, but more may be appropriate, with the
amount varying depending on how you intend it to be used. Basically you decide how
much you want your dependants to receive in the event of your death, and your
premiums will be determined accordingly.
Don�t overlook factors like:
� Mortgage repayments
� Replacing the primary earner's salary
� Replacing childcare
� Education expenses
� Outstanding debts
� Support for a business partner
What do I need to look out for?
Before signing anything, look carefully at the terms and conditions of your
proposed life insurance policy giving particular attention to any regulations
pertaining to payouts. Some policies may not, for example, pay out if death is
caused by participation in certain dangerous sports or activities.
In the case of index-linked policies which allow for economic change, it�s
important to establish whether the policy is linked automatically or whether
there�s the need to opt-in to linkage each year; failure to do so could result in
being locked out of future linking.
Though life insurance payouts are usually tax-free, there are circumstances where
taxes will apply. A life insurance policy can be placed �in trust� to protect
revenue and provide payment more quickly, though this is a complex issue which
needs professional advice for clarity before proceeding.
A joint-life policy is a popular and often less expensive option for couples which
covers the two of them simultaneously, with options for payout on a first-death or
last-survivor basis.
How much will it cost?
The cost of each different policy offered by a life insurance company varies
widely, and depends on a number of factors: the type of policy, the length of the
policy term, the size of the death benefit, the flexibility of the policy, number
of people covered by the policy and so on.
The only certainty is that the longer you delay getting life insurance, the more
expensive the premiums will be!

How To Choose The Right Life Insurance Policy

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Title:

How To Choose The Right Life Insurance Policy

Whole of life versus term life insurance

Whole of life insurance

Typically, policyholders' contributions are invested and life insurance benefits

Term life insurance

How much cover do I need?

It�s important to correctly identify your dependants� financial needs to establish

Don�t overlook factors like:

What do I need to look out for?

How much will it cost?

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