Life insurance used to be a complicated affair and has only recently been offered direct to the public without the assistance of a broker. While brokers are helpful to assist clients as to how much life cover they need, there are ways that insureds can calculate this for themselves. Before you do this, decide what type of life insurance you will need.
There are three general categories of life insurance, namely whole life insurance, term life insurance and accident cover. Within each category are various types of life insurance, such as credit life insurance and universal life insurance. It’s important to not the differences in each category.
Whole life insurance
Whole life insurance refers to life cover for the duration of the insured’s life. But aren’t all life insurance policies for the whole life of an insured? No. Many life insurance policies end when the policyholder reaches a certain age, usually retirement. Life insurance companies which provide these policies assume that by the time the insured retires, he or she no longer has dependents or debt and is not in need of life cover.
Whole life insurance covers the insured for the duration of his life, and while some of the life portions of these policies expire when the insured reaches a certain age (that is, the life cover falls away leaving only dread disease and disability cover), the premiums are returned to the insured after this age in the form of annuities. These annuities can be bequeathed to family members, which makes whole life insurance a true assurance policy and an investment.
Term life insurance
As mentioned, there are certain life insurance policies which expire when the insured reaches a certain age. These are referred to as term life insurance policies. These are cheaper than whole life insurance policies but do not have a cash value. (That is, they cannot be cashed in like some whole life policies, and do not earn annuities after a certain age.)
Term life insurance policies are usually taken out to cover a certain debt for the repayment period, such as a home, or for the period when the insured’s dependents are still dependent.
Accident life insurance
Personal accident cover is the most basic form of life insurance and only pays out in the event that the insured is injured or dies in an accident. It does not cover death by disease or natural causes.
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