A Beginner’s Guide To Choosing The Right Life Insurance Plan

August 11, 2022

Life insurance is a type of policy that pays a lump sum payment (or a regular payout) to a listed beneficiary or beneficiaries should something unfortunate, such as a terminal illness or death, happen to the policy owner.

With life insurance, you can have peace of mind knowing your loved ones are taken care of financially should the worst happen to you during the contracted term.

Life insurance policies are not created equal. Before you take out life insurance, ask yourself:

  • Who is the policy for?
  • What kind of payout do I want?
  • How long do I need cover?

Based on the answers to these questions, you can zero in on the right policy that suits your needs and budgets. Here are the five basic types of life insurance to choose from:

Whole Of Life Insurance

Whole of Life insurance offers guaranteed lifetime coverage as long as premiums continue to be paid. The policy will provide a lump sum payout to your family in the event you pass away.

Taking out this policy may be a good idea if you are determined to leave an inheritance for your loved ones, or provide financial support to offset funeral costs, inheritance tax, and everyday living costs.

Since this type of policy will cover you indefinitely, it is generally more expensive than other types of cover. Make sure you are able to pay the premiums, even in retirement, before taking out this cover.

Level Term Life Insurance

Level term life insurance is a straightforward policy that pays out a lump sum to your family if you pass away within the contract term. The policy lasts for a predetermined length of time. The payout also remains the same throughout the entire length of the policy.

The length of the policy and the payout amount will be decided on when you take out your cover. Life insurance of this kind might be suitable if you want to cover a fixed amount of debt, an interest-only mortgage and household bills.

Level term life insurance usually has lower premiums because no payment will be made should you outlive your contract term.

Critical Illness Cover

Critical illness cover is a type of life insurance designed to pay out a tax-free, one-off payment if you’re diagnosed with a life-threatening illness or condition included in the policy. Major health conditions covered here include cancer, heart attack, and stroke.

Taking out the Critical Illness cover helps to minimise the financial impact on your family should you suddenly become critically ill or disabled and unable to work and pay the bills. The policy will pay out a lump sum that you can use however you like, such as pay for specialised medical treatment, mortgage, and household bills.

It is important to know that not all illnesses are covered and how much coverage you need. We recommend using a tool like this Critical Illness calculator for the latter.

This cover can be helpful especially if you do not have enough savings or disposable income to see you through an extended period off work.

Mortgage Life Insurance

Mortgage life insurance is specially designed to cover mortgage debts and associated costs if you pass away before you have paid off the loan in full. You might want to take out this policy if you are buying your home with a mortgage and have a spouse and children who depend on your income.

Because your loved ones may not afford the mortgage without your income, this policy could pay off the amount if you were to pass away within the contract term.

Mortgage life insurance is also known as decreasing term insurance. This is because the level of cover decreases as you continue repaying your mortgage.

The length of your mortgage life insurance will vary based on your mortgage term. If you took a 10-year mortgage, for example, the policy would be effective for at least this duration.

Over 50’s Life Insurance

Over 50’s life insurance is a type of policy taken out by people aged above 50 years. It is similar to a ‘Whole of Life’ policy in that it provides coverage for the rest of your life, instead of a set period of time.

Most over 50’s policies will require that you pay a fixed, monthly premium until you pass away. Your family will receive a lump sum payout if you pass away, no matter when that might be.

A policy of this kind might be suitable for those with a troubled medical history. Anyone can qualify for the over 50’s policy regardless of their health or lifestyle.

Conclusion

Having trouble finding the right life insurance plan at a rate you can afford? Speak to a trusted advisor to help you plan for the unexpected and the future of your loved ones.

Good luck!

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Andi Perullo de Ledesma

I am Andi Perullo de Ledesma, a Chinese Medicine Doctor and Travel Photojournalist in Charlotte, NC. I am also wife to Lucas and mother to Joaquín. Follow us as we explore life and the world one beautiful adventure at a time.

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