You’re almost certain to have heard of life insurance, but you may not have heard of another type of life cover – life assurance. Much life insurance, life assurance, life assurance is essential for anyone who wants to ensure their loved ones are after they pass away. So how does it work, and who needs cover? Find out in this article…
Life assurance (also known as whole of life insurance) is a type of insurance policy used to provide financial protection for your loved ones, in the event of your death. Once this happens, your insurer pays out a cash lump to your family, providing financial security during this difficult time.
Life assurance pays out no matter when you die, meaning your family is guaranteed a cash lump sum when the time comes. When you apply for cover, you choose how much cover you want the policy to pay out when you die. Ultimately, the amount of coverage depends on how much cover your family will need, relating to your monthly income.
There are two types of life assurance:
- Standard cover: Both your premiums and pay-out amount are fixed throughout your cover. This is most beneficial when you get older, in which the cost of life insurance premiums can rise.
- Maximum cover: Your policy is linked to an investment fund. Every month, your insurer will invest the money from your premiums to cover the value of the eventual pay-out.
Once you take out a life assurance policy, you begin paying a monthly premium to your insurer. You are required to continue making these payments in order to remain covered. If not, your insurer may end your cover, and you won’t receive anything for the premiums paid up until that point.
Life assurance is essential for anyone who wants to ensure their loved ones receive adequate compensation after they pass away. If you don’t have any dependents or children, then you probably don’t need life assurance. However, if you do have children, a mortgage, or other debts, then you’ll likely benefit from having some form of life assurance.
The people who may need life assurance cover are:
- Married couples
- Young families
- Single parents
You can also get joint life insurance – this covers two people under a single policy, ideal for spouses. It can also work out cheaper than buying separate policies, as well as easier to manage. Joint policies typically pay out after the first death within the couple. The survivor then has the necessary funds to provide support to your children, for example.
The pay-out from a life assurance policy can be used to help your family with future payments, such as:
- Living expenses
- Household bills
- Mortgage repayments
- Funeral costs
- Outstanding loans/debts
If you’re unsure about how much cover you need, it’s best to speak to your provider or a financial advisor.
Life insurance is generally referred to as term life insurance. This type of policy provides temporary protection covering you for a set period of time (i.e 30 years). Whereas life assurance pays out regardless of when you die, term life insurance only pays out if you die within the set policy term. If not, the policy expires and you will no longer be covered.
There are three types of term life insurance:
- Level term – the amount the policy pays out remains the same throughout your cover. The cost of your monthly premiums is also fixed throughout.
- Increasing term – The pay-out amount increases over time to protect the value from inflation. This way, your loved ones receive the same value for money that they would have received when you first took out the policy.
- Decreasing term – Designed to cover large payments like a mortgage. The pay-out amount lowers over time as you make repayments on the existing debt.
As already mentioned, life assurance refers to whole life insurance – which provides permanent protection. Unlike term life insurance, the policy pays out no matter when you die – so long as you keep paying premiums. Life assurance is generally more expensive than life insurance. However, your family is guaranteed a pay-out when you die.
Whether you want to buy life assurance or life insurance, there are a number of factors that affect the cost of cover. Life assurance is typically more expensive than life insurance as it provides permanent cover. The main factors that affect the cost of life assurance include:
- Cover amount
- Smoker status
Age and health are two of the most important factors when it comes to the cost of life assurance. The cost of taking out cover rises significantly as you get older due to the increased likelihood of a claim being made. Most providers will also request that you undertake a medical examination or questionnaire.
One way you can save money on your premiums for life assurance is by buying cover at the earliest stage. This is when premiums are at their lowest. However, if you’re looking for a cheaper alternative to life assurance, then term life insurance is likely to be your best option.