What is Life Insurance?
There are various types of life insurance. However, the principle for each variation is the same. In the event of your death your dependents will receive a sum of money in compensation ie as replacement for your earning power.
Why bother?
You only really want to consider paying for life insurance if you have children or others who are very reliant on you bringing home the bacon. If you’re a singleton and someone suggests you need life insurance, then simply consider why you should bother? OK if you’re the only earning child of parents whose pension arrangements won’t keep them in comfort forever, then go for it.
Otherwise, you could always get insurance to pay for a huge wake – if you’ve got that sort of sense of humour.
Unless you’ve got dependents or another good reason to have it, be wary. Life insurance is one of the few remaining ways for IFAs and brokers to make very big commissions.
Summary of Cover
You decide on a sum insured and a term of years from the outset.
The sum insured remains constant throughout the term.
The plan has no investment content.
If you die during the specified term then the sum insured is paid out.
Can be set up as a single life plan, insuring one life for a predetermined sum insured and term.
May also be set up as a Joint life first death plan where the sum insured is payable on the first death.
Critical Illness benefit can be added to most plans where the benefit is paid on either death or a critical illness whichever should occur first.
Terminal Illness benefit is normally payable on most policies during the term of the policy, this usually excludes the last 18 months of the policy term.
As soon as the sum insured is paid out the plan ceases. If you survive the term and the sum insured has not become payable then the plan ceases and nothing is paid out.
Life insurance Buying Tips
Life insurance gets more expensive the older you are. You probably want to buy level term assurance. This fixes how much you pay – and how much your beneficiaries will receive.
The benefit is that you wont be stung for a large premium when you’re older. The downside is that the amount your beneficiaries receive will decrease with inflation. (If you shop around you should be able to find policies that will offer inflation proof payout schemes).