Horses for courses
By: | Posted: 15th June 2007
With so many different types of policies available it's important to be able to choose the right one for you and your family so that everything you need to cover is covered, as well as ensuring that you are not paying for any features that you don't need.
What are the different types of life assurance?
The basic criterion of a life assurance policy is that it pays out a lump sum on the policyholder's death. Beyond that there are a bewildering number of permutations and combinations and a baffling array of jargon.
Broadly speaking, there are two basic categories of life insurance � protection only and investment.
- Protection only:
Known as "term insurance", protection-only policies pay a specified amount if you die within a defined period. If you survive it pays out nothing.
Within this category there are various different types of policy including decreasing term (more widely known as mortgage protection) where the sum decreases commensurate with your mortgage commitments; level term, which pays out an assured sum that remains unchanged throughout the term; and increasing term which is linked to inflation.
- Investment One of the most popular forms of investment life assurance is the endowment policy. This is essentially a savings scheme with the added bonus of life insurance and pays out a sum of money if you die within a certain period OR pays a sum of money out at the end of that agreed period if you survive. This sector also includes "Whole Of Life" insurance, which guarantees the payment of a lump sum when the policyholder dies whenever that is (as long as you keep up with your payments).
Once again the whole life policy class of life insurance can be broken down further in �non-profit' and �with profit' policies � the former being a fixed cash sum and an the later being variable and dependent on profits retuned by the investment.
Your choice of life assurance is going to be dictated by several factors. First of all, look at your family circumstances � do you have a mortgage? Will your partner be able to meet the mortgage repayments in your absence? If not, then mortgage protection is a must.
If your partner is looking after children and unable to replace your income in the event of your death, then you should consider a policy that replaces your income and perhaps considers extra expenses such as childcare or school fees.
Once the basics have been addresses, you can then take a balanced view of what other benefits you can afford, for example � you might be able to afford to leave something to your children in the event of your death? Are you considering taking out a life insurance such as an endowment policy solely as an investment?
Whatever your requirements, once you understand what is available you can use online resources such as Motley Fool or an online personal finance site like ASDA Finance, to make your decision easier.
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