What is the difference between term insurance and whole life assurance?

The simplest answer to this question is that term insurance provides protection against death during a specified period and whole of life insurance provides protection against death at any time. This is a very important distinction to make. Term insurance will last for between one and about 30 years. Should you die during this term, you will receive a benefit. Whole of life insurance will always result in a payment. How much that payment is depends on what type of policy it is and the performance of any investments within the policy.

Term insurance provides more insurance for less money than whole of life policies. This is because premiums are lower, as the insurance company may not have to pay out at all. Therefore you are able to purchase more coverage when you most need it.

Level term insurance is appropriate for someone needing to provide a certain amount of money to cover a need during the term. For instance, someone who has an interest-only mortgage can take out level term insurance to cover their capital repayment.

Increasing term insurance covers an amount that will grow over time. A businessman may cover his partner’s life and the increasing amount would cover the growth in the size of the company.

Convertible term assurance covers someone unsure of long term needs. The ability to convert to whole of life should income increase or to a savings plan should the kids finish college, no longer needing cover.

A young person with a small income should look at renewable term insurance, as the policy is cheaper for the small term, which can be renewed.

Family income benefit could provide an income to pay a nanny if a married woman dies within the term and decreasing term insurance will pay for a mortgage repayment should the insured die within the term.

Whole of life policies provide permanent life cover and sometimes an investment element.

Whole of life non profit policies are only of use to an elderly client with a known, fixed inheritance tax liability who wants a fixed premium.

Whole of life with profits policies can provide a tax-free lump sum to your beneficiaries on death which could increase with bonuses, with a low investment risk.

Unit linked whole of life provides the chance to change the amount of cover as opposed to investment. So, earlier in life a family man may want high cover for their family, but later in life he’d want an investment fund for surrender on retirement.

Universal whole of life allow for flexibility that other policies don’t have.

Low cost whole of life provides a high level of cover to someone with a low income.

 

 

 

 

 

 

 

© AskFinancially.com 2008

Life Insurance

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