Life insurance is an important financial product as it helps create a plan for those who are left behind when you pass away. The policy can help your family pay off debts and mortgage or fund future education so they can live comfortably after losing you. Here we list the five most common types of policies and what each offers:
1. Term Life Insurance
This plan provides cover for a set, predetermined period of time and pays out a lump sum tax-free to your family if you die during the policy term. For example, if you opt for 10 years of coverage and pass away after 9 years, any remaining balance will not be paid as it is not needed anymore. You can claim as much as you want with each monthly premium payment.
If you decide on this type of policy then you have to keep in mind that no medical is required when applying for it so they’re generally more affordable than other options but the premiums vary from provider to provider. A major benefit is that if your health declines or you become a smoker at a later stage then you can still apply for a policy without being rejected.
2. Whole Life Insurance
Whole life is permanent insurance that’s designed to help cover many areas of your life, including providing tax-free cash payouts in the event of your death so the person left behind receives money they need to manage their finances and day-to-day lives. The plan also provides savings and investment options that grow based on how much you contribute.
The premiums remain the same throughout the term of the policy and any increases in premiums or benefit payouts are usually smaller than that of a similar term life policy. You can also borrow against the cash value which builds up over time.
3. Return of Premium
This type gives you back all, or a portion, of your premium if you’re still alive when the plan expires. This is an excellent option for people who don’t want to lose their money but aren’t sure they’ll need cover longer than 10 years. It’s not recommended if you think your health will improve and you may find it difficult to reapply for another plan with different benefits and terms in the future.
4. Income Protection Insurance
Protects your income from loss through illness or accident. If you can’t work due to an accident or illness and you don’t have a workplace income protection plan, this will kick in and pay out a percentage of your salary until you recover or the policy expires.
These types of policies usually come with a section that covers total and permanent disability (TPD) so even if you can’t ever work again, your family will be financially secure as long as they’re eligible for benefits.
5. Critical Illness Cover
Protects you by paying tax-free lump sum payments if you’re diagnosed with one of the illnesses listed on the policy. Some plans also cover chronic medical conditions such as diabetes and heart disease but some require evidence that previous treatment has been received for these diseases before they’ll pay out. With this type of cover, premiums can be higher than other life insurance policies but the payout is usually larger in the event of diagnosis with an illness or condition. There’s also a section in some policies that covers you for loss of income due to critical illness which will pay out tax-free if you’re unable to work for a specified period of time.”