Term life insurance is the most common form of life insurance since it’s the most affordable and, in most instances, makes the most sense for consumers.
To understand how term life insurance differs from other types of life insurance we’ll have a look at the major life insurance options available on the market. Firstly there is credit life insurance which is generally viewed as risk mitigation for lenders; if you take out a home or car loan, this insurance policy will ensure that the lender receives full repayment in the event that you die or are diagnosed with a terminal illness. In such a case the policy will repay the lender in full and the property will be transferred to your estate or next of kin. Credit life insurance will cover only one set loan at a time and will more than likely be offered to you by your lender. Your premiums will be calculated based on the loan amount and you are unlikely to have to undergo a medical examination to qualify – which is why credit life insurance will usually cost you more than term life insurance and will not provide your family with the same amount of coverage. This is why it’s generally a good idea to consider alternative life insurance policies before opting for credit life insurance. Secondly there is whole-of-life insurance is more expensive that term-life insurance because, as the name suggests it will cover you for your entire life span and since a payout if guaranteed you’ll naturally have to pay more. Death as a result of natural causes will be covered as will death by terminal illness or accident. If you opt for this type of policy it is imperative that you keep up with the monthly premiums as failure to do so will automatically result in a cancellation of your policy.
With term life insurance your beneficiaries will receive a lump sum payout that is predetermined in the event that you die within the period set out in the policy and, provided that your death is a result of an accident or a terminal illness. Once this period has expired your policy is canceled. This type of policy is generally cheaper and also has a range of additional benefits – from funeral expenses coverage to free financial advisory services. Whole-of-life insurance is more expensive that term-life insurance because, as the name suggests it will cover you for your entire life span and since a payout if guaranteed you’ll naturally have to pay more. Death as a result of natural causes will be covered as will death by terminal illness or accident. If you opt for this type of policy it is imperative that you keep up with the monthly premiums as failure to do so will automatically result in a cancellation of your policy. Term life insurance is usually renewable annually however; you can select other renewal option from a 5 year to a 20 year renewal period. It is a good idea to select an annual renewal policy as you will be reminded to update the details on your policy which is very important in maintaining a fair policy. People that have a mortgage and are saving for their children’s education or are perhaps starting to save for retirement will prefer this type of life insurance policy as opposed to whole-of-life insurance since once their mortgage is paid off and their children have completed their education they would not necessarily require life insurance.
Although it may seem that taking out a life insurance policy is a straight forward process – it’s important to keep a few simple, yet crucial things in mind. Firstly, you should review your policy often to ensure that it still covers everything that you need it to, to make any additions or adjustments to the beneficiaries listed and of course to update your provider with any new details and information. If you’ve just gotten married or divorced, had your first child, accumulated any serious debts or any life changing event – you must inform your provider. In addition, it’s not only policy holders who change – insurance companies and their offerings do too – if you're still on an older policy you probably won’t be entitled to any of the new products or benefits on offer. Remember to inform your family of your life insurance policy and make sure that a copy of it is attached to your will. So how much cover do you need? As previously mentioned every person will bring a different set of circumstances and needs to the table. In addition to paying off all of your debts, a life insurance policy should be able to provide your family with at least 4 years of income replacement. The insurance broker will review your individual needs and recommend an amount however, it is your responsibility to look over this to understand how the specific figure was calculated. Remember that you will have to complete medical forms which will be assessed. Once you’ve been assessed you’ll be provided with your policy terms which you can than review to decide if you’re happy with. The insurance provider will also offer you additional cover and one of the most important of these will be trauma cover that will pay out a set amount of money if you have a heart attack, stroke or are diagnosed with a terminal illness such as cancer of heart disease. Since you are much more likely to suffer a trauma than to die – adding trauma cover will increase your premiums however, this may well be worth it since you will likely be unable to continue earning an income. In addition you may be offered a premium waiver which means you're life insurance will still be in full force even if you lose your job or income and are unable to continue making the payments. If you currently rely on one source of income – it’s a good idea to include this in your policy.
Speak with an independent insurance advisor
Ensure that you speak with an independent insurance advisor such as one that isn’t tied to a single company as they will only be able to offer you the packages offered by their company. This will limit you greatly in your ability to find a policy that meets your specific needs. Any independent advisor or broker should be able to offer you more than one insurance option and should, at minimum have at least 5 available options. You should be aware that some independent advisors and brokers will charge you for their services while others will receive a commission from the insurance company that you end up taking up a policy with. Also remember to review more than one insurance offer – even if this means that you have to use more than one broker or advisor it may end up making all the difference in the world. You may be able to receive free cover for accidental death while your application is being processed even though this should not be a very lengthy amount of time.
