What Is Life Insurance and what does it do ? (uk)

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 ( loans ) 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 ( cheap life insurance ) 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

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