Life assurance is an insurance policy that will pay out a lump sum – this is the sum assured – in the event of the death of the policy holder. It is one of the few things we buy in life that we hope we will never have to use! But it is necessary to ensure that your family and dependants will not suffer financially if the worse should happen.
You could opt to buy a Level Term Assurance policy which pays out only if the policy holder dies. In some cases this will be on the diagnosis of a terminal illness, during the term of the policy. If you are fortunate to be alive at the end of the term the policy will expire with no payment owed. You can stop paying during the life of the policy but it will then be void. You could add a critical illness option, this means you will be paid if you become ill, regardless of whether the illness is terminal.
Level term assurance plans can be taken out on either a single or joint life basis. You pay the same premium from day one.
The cash value of the policy will always be there and will be earning some amount of interest. The death benefit will never decrease provided that you don’t borrow against.
As well as taking out a policy on your own life you can take out a life policy on the life of other individuals such as your spouse or business partner. You will need to show that you have a financial interest in them. It is also possible in these circumstances to take out a joint life policy. There are two main types; a joint-life first-death policy which pays out on the first death of one of the lives assured.; and a joint-life last-survivor policy pays out on the death of the last of the lives assured.
This is the simplest form of life insurance it provides protection for a given period of time. For insurance of this nature the sum insured is only payable if death occurs within the specified period. There is no guarantee that a cash sum will be paid out, as nobody knows exactly when he or she will die, so this is a cheaper type of cover. Life insurance for a person aged 30 will, on average, cost considerably less than for somebody aged 50, as the older client is far more likely to die within any given term.
Whole of life policies
These policies pay out the benefit upon the death of the insured. This means that as long as premiums are paid, a payout will be certain in the fullness of time. Because of this, cover purchased is more expensive than for term insurance. Buyers of whole of life policies can choose a fixed sum insured, or one that is linked to the growth of investment markets. Those that are linked in this way are either “with-profits” or “unit-linked”.