What types of Life Insurance are there?

Life insurance is difficult for many people to talk about for several reasons. Firstly, it usually assumes a very unpleasant state of affairs – that you have passed away, which is something no one wants to think about. Secondly, it is full of unfamiliar terms and difficult-to-understand concepts. Even understanding what types of life insurance exists can be difficult. There are, however, only two types of Life Insurance, being Term Assurance and Whole of Life Insurance. Each of these, in turn, has policy variants which further hinder our understanding of Life insurance. In this article Calm Money explains the difference between the two types of Life Policies and sheds some light on the different Policy variants

Term Insurance

A term life insurance policy is a policy that runs for a fixed period of time (for instance, 10 or 30 years.), hence the name Term. This policy pays out only if you die during the life of the policy. The longer the policy term, or the older the life that is insured, the higher the premium will usually be. There is no investment element it is straight forward insurance and therefore no benefit or payment at the end of the policy term – it only pays if the person insured dies during the term of the policy..

Whole of Life

Unlike Term Assurance, a Whole of Life policy can last for the whole of your Life. It is called 'Life Assurance' rather than 'Life insurance' as the policy will pay out regardless of whether you die or not, as long as you keep up with your premium payments. While the guaranteed payment is certainly attractive (without having to die to obtain it!), whole-of-life policies are also more expensive. Again, unlike Term Insurance, the premium you pay is only partly for insurance cover, the other part of the premium is paid towards an investment part of the product. It is the investment part that offsets the higher cost of Life Cover in older years and provides a lump sum at the end of the Policy (the Surrender Value) 

Policy Variants - Term Assurance

When you purchase a term life insurance policy it can be

  • Level term insurance  In a level term policy, your premiums are fixed for the life of the policy and a fixed payment is made if you die during the term of the policy. This option is useful for those who want to provide security for dependants up to a certain age. 
  • Increasing Term assurance  This policy variant is designed to increase premiums and the amount paid out so that your cover is not eroded by inflation and the real value of your cover is maintained
  • Decreasing term insurance  In a decreasing term insurance policy, the amount of cover decreases during the insurance term. This is useful for those who wish to secure the payment of a reducing debt, such as a mortgage, and who want a less expensive alternative
  • Convertible term assurance  A policy that allows you to convert to a Whole of Life Policy at some point during the life of the Policy
  • Renewable Term Assurance   A Policy that allows you to continue with your cover without the need for a personal health examination after the term has ended 
  • Joint Life Insurance  A policy that cover two lives, normally you and your partner, and that pays out on the death of the first person. This used to be a cheaper way of insuring both lives but the advantage has been eroded

Policy Variants - Whole of Life

  • Not for profit  With a not for profit policy, a fixed cash sum, "the Sum Assured", is paid on death provided you pay the fixed monthly premium until you die. There is no investment element in the premium and therefore it is very like Term assurance- your beneficiaries will only get the Sum Assured when you die
  • With profits  A With Profits is similar to a Not for Profit  policy, but the amount paid is the Sum Assured plus whatever investment profits have been accrued. The policyholder pays an additional premium to participate in the investment profits of the Life fund, which increases the sum assured by the addition of an annual bonus.
  •  Over-50 plans  Over 50s plans typically insure a relatively small amount, and are generally designed to cover funeral costs. Premiums are usually guaranteed for life, and payouts are usually small (between £500 and £2,000) but there is no medical requirements to be met  However, those buying these policies can find they end up paying far more than the policy will ever pay to their heirs when they die.

.You should decide which of these options are best for you and this will depend on your individual circumstances. If you wish to discuss your options, then fill out our form and one of our Calm Protect team will call you. They will provide free no obligation quotation for the different types of policies so that you can decide which suites your purpose the best.