Today there are a number of different variations of life insurance that you can take out with an insurance company to protect your family in the event that you may die prematurely. Probably the two most common forms are level term life insurance and mortgage (decreasing) life insurance. In addition to this you have the option of taking out a joint life insurance whereby there are two members insured on the same policy or a single life insurance on your life only. Further alternatives are to build in additional protection into your level term life insurance or mortgage life insurance. For example, critical illness, income protection, unemployment. Level term life insurance, also known as level life cover, will provide you with protection for a set number of years (the term). The term of the level life cover is chosen by you and can be any number of years, normally a minimum of 5 years and to generally a maximum age of 89, depending upon the provider. Generally, the younger you are at the time of purchasing your level life cover the cheaper the monthly premiums, payable during the term of the plan. These premiums are normally guaranteed which means that you will be paying the same each month for the life time of the plan. Therefore, it could be advisable that if you were for example taking out life insurance in your 20’s that you should cover yourself up to or near retirement. This is because we would all hope that by the time we reach retirement our mortgage will be paid off and our family will longer be so dependent on your income. Therefore, the sum assured, payable upon your death, will no longer be as important as it would have been whilst you still had a young family and most likely a number of liabilities.
Joint life insurance - Level life cover - Level term life insurance
Joint life insurance is where you can cover your partner as well on the same plan. Joint life insurance is generally payable on the death of the first of you and is also known as joint life insurance first death. Basically, should one of you die during the term of the life cover it will pay out to the beneficiaries and then the policy will cease to exist. Therefore, the surviving member will no longer have any life cover and will have to seek further protection if they require it, for example due to still having dependents to consider. Protecting your family with a level of life insurance might not be on the top of your list, but especially if you have dependents, it should be. Is life cover really necessary? None of us can predict the future, but the one thing most people want to be sure of is that their children, dependants, and family members are taken care of should the worst happen and a critical illness or accident ends a life prematurely. With life and illness cover you can see to it financial worries will be the last thing your family needs to worry about in the case of premature death. The roots of level life cover go back centuries, when Romans formed “burial clubs”, or groups of people who would share the expenses in the case of unexpected deaths and paid for participating member’s funerals plus help the surviving family. The expense was less of a burden by sharing it with all members. The practice lapsed with the fall of the Roman empire in 450 AD, but was again reinstated in England in the mid 17th century. Groups were formed, and paid a premium. In return, should a member die, the group would take care of all the burial expenses and provide a benefit for the member’s remaining family, spouse, and children. This was the basis for level life cover as we know it, although there are many new options today to help meet the needs of growing families. Some of those options include not only life and health cover, but income protection, life and critical illness cover, and mortgage security. The level of life cover is completely your choice, which gives you the opportunity to choose the most appropriate level of life insurance for your family’s unique needs. Below are some options you’ll need to know in order to help you make your decision:
Level term life assurance: In insurance parlance, assurance is the certainly of an event while insurance implies the risk of something happening. Death is assured for all of us, thus level term life insurance is life assurance. This is an inexpensive option for small families, or if you have dependents, to provide for surviving members in case the loss of your income and contribution would financially handicap the household. Level term life assurance provides you with financial protection for a set number of years, or “term”. Terms can extend until age 89 for most policies, renewable every five years. If you die or are diagnosed as terminally ill before the term expires, your family then receives a lump sum to help with finances. Generally, the younger you are when you purchase this level of life cover, the less expensive the premium. Therefore, early planning when beginning your family can pay off big dividends in the event of a premature death or illness. Joint life insurance: In the case of parents of small children or spouses, joint life insurance means both parties are insured on the same policy, and the policy pays out upon the death of the first member. Once the first payout is reached, that is the end of the policy. The surviving member must then seek other level life cover. Life and critical illness assurance: Not only can you provide in case of death with a life and critical illness assurance, you can also provide in case of a critical illness. This option will cost more in premiums, but it’s worth it if you suffer from a critical or terminal illness and still have family obligations and liabilities. The sum is paid out upon a qualifying diagnosis, and this gives you the opportunity to make arrangements as you see fit. Mortgage payment protection: This is an option available which is specific to the mortgage on your home and can be added to most any level of life insurance. The level of life cover can protect and provide a lump sum, but a mortgage payment option can also be included above and beyond that. This is also a good candidate for the joint life insurance, as should one parent or partner pass away the family home is specifically protected and paid for under a level term life assurance.
Which is the life assurance for you? Keeping in mind that level term life insurance is life assurance, it’s necessary to plan carefully. Discussing the subject might not be one of the most pleasant of duties, but especially if you are parents to young children or have dependents, the question of how to take care of a family, should the unthinkable happen, is best answered before crisis hits. In a time of grief, it is difficult to cope, and having all the financial details worked out ahead of time, with the help of level term life assurance, can save everyone from additional stress. Life and health insurance can’t fix everything, but they go a long way toward solving problems for the family members left behind. When considering life and critical illness cover, there are a number of factors that can influence your decision.
- Budget: Even though a life and illness cover only pays off if you die or become critically ill before the term ends, the inexpensive cost makes it a good deal. Some life and critical illness assurance costs only pennies per day, providing peace of mind that if something were to happen, your family would be provided for. Remember, the higher the payout the more expensive the premium.
- Coverage: Is the life assurance providing the options you need to cover your family to your satisfaction? Does it cover the car loan, the mortgage, lost income, or other small loans? It’s up to you to decide what additional options are needed by your family, in order to provide for their unique needs and conditions. You know your family and their needs best, and what they would need to carry on without you financially if it becomes necessary.
- Cost: The earlier you start, the less expensive the premiums are. Age, health, occupation and your status as a smoker all have an impact on the cost of life and health cover. If you’re thinking about fibbing about your status as a smoker, don’t. If your illness is a result of smoking habits, the insurance company may refuse to pay off the claim, citing fraud on the initial application.
Above all, answer all questions on the application form for life and health insurance 100% accurately and honestly. False answers could null and void the contract, and when it comes time to pay off, the insurance company is within their rights to refuse to release life and health cover benefits to your dependants. What is life insurance and how does it help you? Is the life insurance you have currently meet your needs? Is life insurance a necessity or a luxury? These are questions you should discuss with your spouse and family, especially in this day and age when nothing is certain and you want to provide the best for your family. These type of discussions are often not easy, but careful planning now can save a lot of money and heartache in the future. Compare policies and ask yourself, is the life cover offered suitable for the future of your family and its goals? Whether you’re just starting out or well into raising a family, it’s time to consider all your options and decide what life and illness cover will be most beneficial to you.
