Which type of life insurance is right for you? |
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Understanding the options available when choosing your life insurance policy is an important first step in ensuring that your family is properly protected. Here’s a quick guide to the main types of life insurance on the market. Term insurance If you’re unsure about what you want from your life insurance policy, you should begin by looking at term insurance. This is offered by the majority of insurance companies, as well as by friendly societies and other financial providers. It guarantees to pay out the policy benefits if you die within a given time – if you survive to the end of the policy then you are no longer eligible to make a claim. Term insurance tends to be the cheapest kind of life insurance cover. It is also flexible, with the option to fix the term of the policy from anything between a few years and a few decades. Those with young children, for example, may wish to take out term insurance until their dependents are 18 plus and can look after themselves. There are various types of term policies: the main varieties are level term, decreasing term and convertible term insurance. With level term, the benefit is paid on death and remains the same throughout the term – this is useful for covering the repayments of loans or mortgages. With decreasing term policies, the benefit payable falls each year until it is zero at the end of the policy. Finally, convertible term insurance can be converted into permanent cover with the term of the original policy comes to an end. It is advantageous for those in poor health, since your insurer cannot refuse you the right to take out a new policy no matter what your medical condition. However, conversion is generally around 10 per cent more expensive that level or decreasing term insurance. Other types of term insurance include renewable term, which lets you exchange your policy for another when it expires; increasing term, where the amount payable upon death increases every year with inflation; and family income benefit, which is payable on a regular basis from the death of the policy holder to the expiry of the policy’s term. Whole-life policies This type of life insurance policy guarantees to pay the sum agreed on the death of the insured person, whenever it occurs. Premiums can be more expensive, and the size of payments will increase with your age, but you can reduce the cost by arranging only for minimum cover. Try a comparison site to find deals from several companies, as well as dedicated life insurance providers such as Legal and General. One type of whole-life policy that it might be worth checking out is with-profits insurance. This guarantees to pay a minimum amount of life cover if you die, but the sum is increased each year by the addition of annual or reversionary bonuses. It could suit those with permanent dependents.
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Article Added Sunday, 27 April 2008 |
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