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Types of life insurance

There are many things to worry about in life: your career, your health, whether the blues will qualify for the next round on the weekend. If you have a family and own your own home, those worries can increase. And we're not simply talking about getting little Johnny into a good school, but the darker fear of what happens if you or your loved one die.


Life insurance doesn't pretend to answer such big questions, but it can provide peace of mind to you and assistance to those who need it should the worst happen. But if you are looking to take out life insurance, what type of policy do you get? And how do you know if it's right for you? Here we provide a brief guide to the different life insurance policy types.


Whole-of-life and Term


If you want to break down life insurance into types, whole-of-life and term are the simplest way to do it. Whole-of-life insurance, as its name suggests, lasts for the whole of your life and pays out an agreed sum when you die, whenever that may be, as long as you are still paying the premiums. They can sometimes involve investments into an endowment. Because a whole-of-life policy must pay out eventually, there is a pot of money that accumulates over time and it is possible to cash in by retiring the policy early. Naturally, the longer you pay into the policy the bigger the pot gets and so it can be many years before cashing in the policy is worth it.


Term life insurance policies, sometimes referred to as assurances, tend to be paid for only a set amount of time. They are the most common types of life insurance policy in the UK and are often used when people have dependants or large debts such as mortgages. For example, when you buy a mortgage one condition of the agreement can be you have a life insurance policy to cover you for the length of the mortgage. Should you die (or maybe become incapacitated and unable to work for a long period - the details can vary) a lump sum is paid out to help cover the mortgage expenses and thus ease the burden on your loved ones. Your bank, building society, or other mortgage lender, will often try to sell you a life insurance policy when you sign up for a mortgage, but these policies could be quite expensive. If you shop around for life insurance you could get a better deal.


Over 50?


Perhaps one of the most common and well-publicised types of term insurance is over 50's life cover. These are specialist policies for people over the age of 50 that allow them to buy basic insurance relatively cheaply. As with many things in life, there are advantages and disadvantages to this type of insurance policy. If you are between the ages of 50 and 75 (up to 85 on some policies) then you are guaranteed to be accepted and, as is often advertised, there are no medical checks. This means you pay a standard monthly fee regardless of your financial and health status, and the premium is inevitably higher than, say, someone in their twenties with good health.


Over 50 policies tend not to pay out within the first couple of years of you taking up the policy, and some can be longer - although quite a few will pay out if you die as a result of an accident or repay the premiums paid so far. As ever, check the details of the policy. There is also the risk that you could be paying into the policy for 30 or 40 years, or even longer, which means you could pay more in premiums than the policy pays out. However some policies allow you to stop paying once you hit 85, for example, and still be covered. Again, you need to check the fine print, especially as over 50 policies will not pay out if you cancel the policy at any time - you don't want to stop paying once you hit 85 because you think you don't have to any more, only to find that you have no cover.


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