Life Insurance – Definitions and FAQs

December 13th, 2019
Do I really need life insurance?

Whilst this is a topic many would like to avoid, having life insurance does financially provide for your loved ones should the unfortunate occur.

Life assurance vs. Life insurance

Often used to refer to the same thing, but in fact there is a difference. Life assurance pays out when it pays out, it’s a hybrid mix of insurance and investment, whereas life insurance pay out if something happens to the insured individual.

Term life insurance

This type of insurance is the most popular and it pay out if you pass away during the period of the life cover, to some extent like a car insurance- you are only covered for the period that is specified.

Whole of life insurance

Whole of life insurance/cover guarantees to pay out once you pass away. Given this guarantee, it can be referred to as life assurance and given the guarantee; it will be more expensive than term life insurance.

Over 50s life insurance

A type of whole of life insurance designed for those aged 50 to 80, this type of insurance offers guaranteed acceptance to all valid applicants without the need for a medical check-up.

Convertible term insurance

This is a term insurance policy that can be amended to an endowment policy or whole of life without any further medical check-ups.

Endowment Policy

This is a life insurance contract which pays a lump sum on its maturity or when the insured has passed away. The standard maturity periods are 10, 15 or 20 years up to a certain age limit.

Decreasing term insurance

With this type of term life insurance, the sum insured decreases over time typically tracking the mortgage repayments.

Level term insurance

With this type of term life insurance, the pre agreed sum insured remains the same throughout the policy.

Increasing term insurance

With this type of term life insurance, the sum insured increases with time accounting for change in circumstances and inflation. It is important to note that the premium may or may not remain the same.

Critical illness cover

Bought as a standalone or integrated into a life insurance policy, critical illness cover makes a pay-out if you are unable to work due to a diagnosis of a critical illness condition that is pre-defined in the policy.

Terminal illness cover

Often given as a standard feature on most life insurance policies, terminal illness cover pays out if the individual insured is terminally ill.

How much is the premium?

Naturally, this varies person to person as various factors are taken into account such as the sum insured, length of policy, family medical history, occupation, age, life style habits etc.

What is a joint policy?

Typically cheaper than two individual policies, a joint policy can be taken out by partners. However, once there is a claim, this policy seizes to exist for the remaining partner. Meaning, should they decide, they will need to get another life insurance policy which could have higher premiums given the increase in age etc.

What is death-in-service?

This type of cover is sometimes offered by your employer, which gives you cover usually up to x4 base salary. However, this may not be sufficient to look after your loved ones and this benefit could be lost if you leave the employer.

What are the additional cover options?

There are various additional options depending on your requirement. Options include, bereavement counselling, funeral cover, waiver of premiums etc.

Waiver of premiums

If you are unable to work due to ill health, the waiver of premiums will allow your life insurance policy to remain intact as the premiums will be paid by the cover. This payment is continuously paid until you return to work, until the policy ends or until you’ve reached a certain age.

Is my life insurance pay-out liable to tax?

Life insurance pay-outs are not liable to capital gains or income tax but depending on the circumstance, your heirs could be liable for inheritance tax. Note, this can be overcome by simply having your life insurance policy written in trust.

Women have a longer life expectancy, do they pay less?

Whilst this used to be the case, due to a ruling by the European Court of Justice – gender directive, since 2012 gender cannot be taken into account by the insurer and hence, premiums for women have inflated.

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