We understand that it is complicated to decide which life insurance policy is the most suitable for your situation. To make it easier, it is important to research all your possible choices and to consider your requirements.
Without wasting any more time, let us first understand the two basic types of life insurance policies that you have available to you.
Term Life Insurance
As the name suggests, term life insurance covers you for a set term. This is mostly for 5 to 30 years and as long as you are paying premiums. If you happen to die during that term, the beneficiaries you have mentioned receive the payment amount.
If you are alive until the policy matures, the insurance coverage ends. In other words, you no longer have to pay premiums and you no longer receive any pay-outs from the insurance company.
Additionally, there is a convertible term policy that lets people switch to a whole life policy when their respective term insurance ends. The only glitch here is that the premiums that you pay eventually increase.
Whole Life Insurance
As the term says, whole life insurance covers you for your entire lifetime and also pays the insurance amount to your mentioned beneficiaries. There are several types of whole life insurance policies one can opt from such as
- Straight life
- Universal life
- Variable life
- Variable/universal life
Unlike the term life insurance policies, whole life insurance policies have an investment element. The premiums that you pay in whole life insurance do not only include the cost of the insurance but also an extra amount which is invested and that grows tax deferred over the life of the policy. You can take loans against this amount where the amount is deducted from the benefit your beneficiaries receive upon your death.
Now that you know a brief about the two basic types of life insurance policies that you can take, here are three questions you need to ask regarding them.
Three questions to ask regarding life insurance
Following are three basic questions you need to address before finalising your decision.
1: How much does it cost?
As the difference is quite clear, the monthly premiums for a term life insurance policy are comparatively lower than a whole life insurance policy. The only concern with the cost arises when you want a new term life insurance policy when your old one expires, you will have to pay more. This is because the basic life insurance premiums are based on two factors: your age and your health.
For instance, if you purchase a 30-year term life insurance policy at the age of 30 and the policy expires when you are 60. If you want to buy a new term life policy at the age of 60, the premiums you pay at that age are likely to more (taking your health into consideration). However, the premiums you pay for a term life insurance policy remain the same for the entire term.
On the other hand, premiums made in a whole life insurance policy are much higher. But the advantage is that these policies never expire, which means you do not have to pay more for insurance later in future. Upon your death, your mentioned beneficiary receives the amount which you have collected over time.
2: Am I Being Sold Any Other Policy Alongside?
There have been several cases in the UK where people were unaware about PPI (payment protection insurance) policy being sold alongside insurance policies. This behaviour of the lenders gave rise to the biggest financial scandal of the UK called the PPI mis-selling scandal.
So we suggest you to carefully check the policy terms and conditions before signing them. If you have already purchased a policy and then realise the mention of PPI in it, you can make a claim. There are basically two ways in which you can make a PPI claim,
- You can seek help from the claim management companies to claim mis-sold PPI on behalf of you
- Make a PPI claim all by yourself
Therefore, it is always important that you cross check the insurance documents for the mention of any additional policies before signing them.
3: How should I choose an insurance company?
We recommend that you choose an insurance company that has a good track record of financial stability. You can also Google any company you’re deliberating using to assure yourself that they are as good as they claim to be.
Alternatively, you can also seek help from your state insurance company for information on complaints against different insurance companies.
Whatever company you decide to go with should have a good range of choices for the type of insurance you require and its rates should compare favourably with other options.