Life Insurance Policies Explained

As we have already seen Term Life Insurance offers coverage for a predetermined period usually in the region of 15 to 20 years. If you die during the lifetime of the policy, as long as you have kept up to date with the payment of your premiums, then your dependents will receive a lump sum when you die. However, if you die after the policy has expired then no lump sum will be paid.

For those looking for cheap life insurance “Term Life Insurance” is probably your best option – not only is it widely available, but it is easy to understand and it is the cheapest form of life insurance.

In all, there are 5 different types of Term Life Insurance

Level Term Insurance

For the duration of this policy the premiums, which are paid at regular intervals, are set at a fixed rate. The value of the lump sum that is paid in the event of your death also remains the same whether you die on day one of the policies or the day before the policy is due to end. “Level Term Insurance” is often purchased in conjunction with interest-only mortgages.

Increasing Term Insurance

With this type of insurance policy not only does the potential pay-out increase year on year (on average by about 5%) but the premiums you pay month on month also increase. The key benefit of “Increasing Term Insurance” is that it offsets increases in the standard rate of inflation.

Decreasing Term Insurance

“Decreasing Term Insurance” truly is cheap life insurance as the monthly premiums are very low indeed, however, the potential lump sum that is paid out in the event of your death decreases year on year until at the end of the policy the pay-out value is nothing. As a form of cheap life insurance “Decreasing Term Insurance” is often purchased in conjunction with repayment mortgages – for further information please refer to our section on Mortgage Life Insurance.

Convertible Term Insurance

This is probably the most flexible of all life insurance products as at any point you can switch to another type of insurance product – usually “Whole of Life Assurance” without the need for a medical assessment. It is worthwhile bearing in mind that when you convert to another insurance policy your premiums will invariably rise.

Family Income Benefit

Unlike all the previous policies we have covered Family Income Benefit does not pay out a lump sum at the point of your death instead, your loved ones receive an income for the remainder of the policy’s lifespan. For example if you took out a 20-year policy, but died after 14 years, your loved ones would receive an income for the remaining 6 years of the policy.

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