Life insurance is a contract signed by the insured and the insurers who agree to pay a designated amount of money to the beneficiary on the death of the insured. Alongside the regular payments paid by the insured to the insurer, the contract will specify what criteria have to be met for the premium to be paid. This might include earlier payment for critical or terminal illness; it will also specify what will void the contract payment, normally events such as the suicide of the insured, war, riots and civil unrest.
Life insurance policies can be divided roughly into three.
- Policies that only offer death benefit after payment of the premiums within a specified time.
- Policies that have a monetary value at the expiry date of the policy.
- Whole life insurance – premiums paid throughout a life time.
This is insurance that covers you for death within a specified period of time, normally one to two years. This insurance gives the better pay out for the dollar but is limited. Sometimes the ‘Term’ insurance policy can be renewable, but this almost always increases the premium paid. An option is that the policies can be convertible; this means before the end of the policy you can exchange it for a whole life or an endowment policy.
Whole life insurance
An ‘ordinary’ or ‘straight’ life insurance policy that has the same monthly amounts paid to the company for as long as you live. These can be a higher amount that with the ‘term’ insurance but will work out more economical if you keep renewing the term insurance.
This policy pays you a sum of money if you live to a certain age. If you died before that then the death benefit would be paid. This type of policy tends to higher premiums to pay than the other two.
A lot companies have optional extras that can be purchased alongside the life insurance policy for extra payment. These can include spousal insurance, child insurance disability income protection insurance and many more.
Once you choose your policy, remember to re-evaluate it every year to ensure it remains suitable for you and your family and definitely do this if you experience a life event such as divorce, birth of a child, open a new business, move to another apartment or buy a house.
Life insurance can be complicated and confusing, so do not rush into it, consider all your options and talk to financial advisers. A good insurance agent should discuss you requirements and be showing you comparisons between companies and policies to find the best option for you.
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