Life cover is about providing some financial security for people who depend on you financially. There are different types depending on your circumstances.
What it does
Life cover will pay out a lump sum or fixed regular income either when you die (if a whole of life policy) or if you die within a specified term (term insurance). Some whole-of-life policies also contain an investment element to them, but such investment-type policies cost a lot more than protection-only insurance.
If you want investments, consider the full range of products (not just life cover) which might meet your circumstances and needs.
This is the simplest and cheapest type of life cover, and is known as term assurance because you choose how long you're covered for, say, 10, 15, or 20 years (the term).
It only pays out if you die within the term you've agreed. If you live longer than the term, you get nothing. As a couple, you can also take out term cover in both your names, with the policy paying out on the first death only during the term.
There are different types of policy you can have:
- family income benefit (a policy which pays out income rather than a lump sum);
- increasing policy (where cover and premiums rise over the years);
- decreasing policy (where cover decreases over the years); or
- renewable policy (which lets you extend the original term).
Decreasing term is often linked to a repayment mortgage (where the amount you owe decreases over time) and may, in this instance, be called mortgage term assurance or mortgage protection life assurance.
The premiums you pay are usually fixed for the whole term. There are also contracts where premiums are reviewable after a certain period, usually five years.
Whole-of-life cover pays out an agreed sum when you die, whenever that is, as long as you are still paying the premiums.
For life cover (non-investment) - The plan will have no cash in value at any time, and will cease at the end of the term. If premiums are not maintained, then cover will lapse.
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Andrew Visser – IFA
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