Live Insurance to Protect Your Loved Ones

Life insurance, also known as life assurance, is a type of insurance that will pay out on your death, to facilitate payment of your debts and to provide an income for your family.

Life assurance: the Deal

Conceptually, life insurance or life assurance policies are very simple; you pay regular (usually monthly) premiums to the insurance company and it then guarantees to pay out to your dependants an agreed amount of money (known as the ‘sum assured’) in the event that you die during the term of the policy.

Why bother with life insurance to protect your loved ones?

The most common reason why people take out life assurance cover is to pay off their mortgage so that their loved ones will still have a roof over their heads, if the main breadwinner dies, unexpectedly. Mortgage lenders encourage (and may insist on) the borrower taking out adequate insurance to cover the cost of repaying the mortgage.

Types of insurance policies?

Life insurance policies can be divided into three main categories: term assurance, permanent life insurance and accidental death insurance.

Term assurance explained?

Term assurance policies are issued for an agreed number of years (a fixed term) in exchange for regular premium payments. If the policyholder dies during the term of the policy, the insurance company will pay out the sum assured to the beneficiaries of the policy, but when the fixed term comes to an end, the policy has no residual value. This type of policy is often taken out in conjunction with a mortgage, with the insurance policy term being the same number of years as the mortgage term.

Permanent life insurance explained

Permanent life insurance policies are usually paid for by regular premium payments which do not normally vary over the term of the policy. These policies act as a type of investment and build up monetary value over the term of the policy. The policy will pay out money to the policyholder when the policy has matured or to the policyholder’s dependants when he or she dies. Some permanent life insurance policies are open-ended, meaning they will pay out only on the death of the policyholder (as long as payment of premiums has been maintained).

Accidental death insurance explained

In recent years, an increasing number of insurance companies have been marketing accidental death insurance. The premiums for these policies are lower than for other types of life assurance, but they will only pay out in the event of the accidental death of the policyholder.

A word of caution about accidental death insurance cover

If you are considering this type of insurance, it is very important to read the exclusion clauses. Death resulting from a variety of activities including skiing, motorcycling, piloting an aircraft or sky diving may not be covered by some accidental death policies.