Taking out a life assurance policy is a bit if a grudge purchase for many of us. Yes, we know that it is necessary, as none of us want to contemplate the idea of a death in the family resulting in extreme financial hardship for those left behind. Bereaved family members will have enough to deal with, without having to worry about money…
Life assurance is the means by which this worry is removed. But there are different types of life assurance policies, so it is important that you get the right policy to meet your needs. Here are some of the main types of policies that your Financial Broker will consider, in recommending a policy to meet your needs.
This is life assurance in its most basic form. You pay a small regular premium (usually monthly) for a set amount of cover. The premium and amount of cover are based on your age, health, whether you smoke etc. One of the normal features is that the cost is guaranteed at the outset and then doesn’t change during the life of the policy. However you can choose for your cover and premium to increase by a set % each year (increasing term cover) to protect you against inflation.
The cover stays in place for a set term – maybe 10/20/30 years and after that period (and assuming you are still alive), the cover simply ceases.
Whole of life cover
This is different to term assurance in that with whole of life cover, it is not linked to a specific term. This makes the cover more expensive as you may continue the cover right into old age, when there is a much higher probability of a claim. In addition, the insurer has the right (and will often exercise it) to review the cost of cover every 5 or 10 years, because of a range of factors (investment returns, claims history overall etc.). This can result in fairly significant increases in the cost of cover.
Convertible term assurance
This is term assurance that gives you the right to “convert” your policy after the set term from a basic term assurance policy to a new policy without medical evidence. This can be an extremely valuable benefit if you are in poor health, as you may be unable to get life assurance in place at that time because of your health situation.
Decreasing term assurance
This cover is usually used in conjunction with a mortgage. The aim of this cover is to repay your bank the outstanding mortgage amount in the event of death. This ensures your family can stay in the family home, without any mortgage after your death. The amount of cover decreases each year, to track your reducing mortgage amount.
All a bit of a minefield? It doesn’t need to be! Your Financial Broker will build an understanding of your needs and will find the best policy for you.