Life Insurance Guide

Life Insurance - Most of us have heard of Life Insurance and appreciate that it is a policy provided by an insurance company, that pays out either a lump sum or a series of payments when you die. These payments are normally paid without the deduction of any tax, and in most instances are tax-free.

The proceeds of a policy can used:

to pay off a debt such as a mortgage
to provide an income for your dependents
as a savings scheme.

Life policies can be combined with other forms of cover, such as Trauma Insurance so that you receive the lump sum if you are diagnosed with a serious illness.

There are three main types of life cover

Term Cover: this is the most common form of life cover. It pays out a lump sum if you die during the term of the policy. Premiums are related to age , so much cheaper for younger people and more expensive when older. There is no investment component, so if you live until the end of the term, no money is returned.

Whole-of-Life: this type of policy is designed to pay out at the time you die whenever that date should be. Therefore as long as you maintain paying into the policy there is guarantee that on your death the sum assured will be paid to your Estate.

The premiums for all policies vary according to your personal circumstances, such as your age and previous medical history.

Superannuation plans - personal or occupational - may include an element of insurance if you die before you reach the set retirement age on your pension. Often in the case of occupational superannuation schemes the cover is normally expressed as a multiple of salary. If your cover is arranged through an super scheme of your current employer, you should seriously consider starting a new policy to replace the cover if you leave your job.

Within the general definition of term insurance, there are a variety of policies.

Level Term: the premiums you pay and the amount of the cover remain constant throughout the term of the policy.

Decreasing Term: the amount of Life insurance protection decreases over the period of the policy, although you continue to pay the same premiums. This type of policy is typically used to pay off an outstanding debt which decreases over a period of time, such as a mortgage.

Increasing Term: the amount of cover and the premiums increase each year, generally in line with inflation. This type of cover can be used to provide an income for your dependants, as it is more likely to track the income they would require were you to die.

This does depend upon the type of policy you own. However unless you have a policy that contains an investment element then you are unlikely to receive the value of the premiums you have paid.

In most cases if you stop paying the premiums to your policy, the cover will stop.