Types of Life Insurance

There are several types of cover available which are explained below:

Level Term - You are insured for the same amount throughout the agreed term. At the end of the term nothing is payable and there is no surrender value.

Decreasing Term - The sum insured reduces by a fixed amount each year, decreasing to nil at the end of the term. The premium will normally stay the same throughout the term. These policies are normally used to cover a mortgage or other loan as they pay any outstanding balance of the debt if you die early. They can also protect a liability to Inheritance Tax on gifts to others. At the end of the term nothing is payable and there is no surrender value.

Critical Illness Insurance - If you, or those who depend on you, would face financial difficulties if you became critically ill (for example if you had cancer, a heart attack or a stroke), you may want to consider adding critical illness cover to your policy. If you're critically ill, the last thing you'll need is any financial worry like the fear of losing your home because you can't pay your mortgage. Critical illness cover aims to give you peace of mind in these circumstances.

Renewable Term - You have the option, after a specified period (usually 5 years) to take out a further term policy without the need for any further evidence of health, providing the policy will not continue beyond a certain age (often 65 or more).

Convertible Term - You can convert the policy to a whole life or endowment insurance without giving further evidence of your state of health. If you decide to convert, the new policy will usually cost the same as a normal whole life or endowment policy based on your age at the date when you exercise the option. If you have a young family and a limited income these policies might be best. Not only do they provide cheap life cover at the outset, but they give you valuable options in later years if your income has risen or your health has declined.

Increasing Term - The sum insured and premium increase each year by a fixed percentage of the original sum insured. These policies are designed to increase your insurance protection as your earnings increase.

Family Income Benefit - If you die during the term of the policy a regular income is paid to your dependants for the rest of the term. The income can be paid monthly, quarterly or yearly. Some policies provide an income which increases each year at a fixed rate - say by 3% or 5%.