Life Insurance

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Life Insurance: An Introduction
By Myles Johnstone

Life insurance is more important to others than it is to yourself. However this does not mean that you should neglect your obligations!

Life insurance is a contract between you, the contract owner, and the insurer (insurance company). The insurer pays an agreed sum of money to the insurance company, usually in the form of a monthly premium, in return for a cash payment upon death. The policyholder usually assigns a designated beneficiary to whom the payment will be made.

Today there are life insurance policies available that cover for other things besides death. All life policies cover for death but many now offer full, or partial, payment upon the diagnosis of a terminal or critical illness. There are an increasing number of life insurance policies available that incorporate elements of health insurance. Such policies cover for the terminal and critical illness as mentioned but also make payments when other things such as, disability due to ill health or permanent disability or the need for long term care is experienced.

There are two forms in which life insurance policies are made available, protection policies, which typically offer an agreed lump sum payment, and investment policies which pay cash settlements based upon the amount paid and the capital growth gained by investment of such.

There are several types of life insurance which can be categorized into temporary or permanent insurance or accidental death.

Term Life Insurance/Temporary Life Insurance

Term Life Insurance or temporary insurance is an insurance policy which covers the insured for a fixed period of time. This form of insurance typically only pays out upon the death of the insured but only if it occurs within the specified period, one day after and there is no payment! Term assurance is, possibly, the simplest and most easily understood of all the life insurance options available. These policies do not usually have a cash surrender value.

Permanent Life Insurance

Permanent life insurance is a policy that remains until the maturity date is reached or until the contract is ceased. Usually the contract can not be cancelled, unless within 2 years or if there is a failure to make the payment. These life insurance policies differ from term life insurance in that they have a cash surrender value. In many cases it is possible to access the cash in other ways such as being able to borrow the cash value or making a withdrawal. There are three main types of permanent life insurance; whole life, endowment and universal life insurance.

We will investigate the permanent life insurance options in later articles as they can be complex and there are many decisions to be made when looking for the best cover.

We hope that the articles below help you understand the subject of life insurance and that they help you to make the best decision for you and your family.

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