Life Insurance: It’s Dead Boring
Okay life insurance is boring. I can’t really paint over that one. Nevertheless it is something we should all consider especially if you have family or friends that depend on your income. So why do you need to consider taking out a life insurance policy and what should you be looking for from your policy?
There are a number of different types of policy. The main thing to be aware of is that life insurance is essentially an agreement that will pay out in the event of death. It is a financial agreement. If you currently pay a mortgage you will likely want a policy that will arrange to pay off your mortgage in event of your death. If you are the primary earner in the family then life insurance cover can be arranged to replace your salary in the event of your death. It may also be a consideration for if you currently pay for your child’s education. Coverage can include school or university fees so that if you were to pass away the person that depends on your contribution to their education will not have to suffer. It is horrible to think that you might leave debts behind.
Life insurance generally pays out a lump sum in the event of a policyholder dying. Although this is a general description there are several distinct varieties. A level term policy pays out an agreed figure in the event of the policy holder’s death. This figure does not change throughout the term of the policy. In a decreasing life agreement the payout sum decreases over time. It is often calculated to coincide with mortgage payments so that they are covered in the event of a death. These mortgage payments decrease over time as they are paid off over the insured’s lifetime.
Renewable term allows the applicant to renew their policy when it expires. Unlike other policies this can be done without a medical check up. A convertible term policy is similar to level term insurance but includes the option to revert to whole life or endowment insurance. Increasing term is a form of insurance that attempts to reduce the impact of inflation. The policy payout escalates each year accordingly. Index linked term works to a similar theory. It is offered by some insurers and the premium increases each year in relation to the retail price index.
The cost of your premium is calculated on probability. Actuaries work it out using mortality tables. It is vital that you disclose as much information about yourself as possible or else your policy may be invalidated. Most insurers have a list of people that are considered of greater risk. These include, people that work in high risk occupations, dangerous sports and hobbies, poor medical history, smokers, and over 60s. If you would consider yourself any one of these it is very important to search around for a quote because each provider is likely to calculate their policies differently and the price can vary hugely.
By: Shaun Parker
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