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Term Assurance
Cash lump sum paid out in the event of death
Straight term assurance is still a very cost-effective way of providing financial protection for the family or business. A lump sum is normally provided when a claim is made which is paid into the estate of the policyholder.
In order to avoid complications with delays in probate or inheritance tax, an appropriate trust can be used so that any payment is made direct to the beneficiaries.
It is also possible to have the cover indexed according to inflation, so that the level of cover remains the same in real terms. Since there is no element of saving, the plans do not acquire a surrender value. If you wish to include this option, you could opt for convertible term assurance.
Family Income Benefit
A regular income paid following death during the term of the plan
This type of plan provides for a regular income to be paid out in the event of the death of the life assured during the term of the policy. With each month that passes, the liability which the insurance companies is taking on decreases by a set amount. This enables the costs to be kept down to a minimum and is often the least expensive plan available.
The benefits can be written in trust to avoid legal delays and any possible liability to inheritance tax.
Mortgage Protection.
This type of plan is also a term policy which covers the declining balance of a repayment mortgage. This enables the cost to be kept to a minimum but make sure that the interest rate figure is high enough for any possible increases in the mortgage rate.
Whole of Life Cover
Provides cover for the rest of your life
The main disadvantage of term cover is that at the end of the term, cover ceases and any new policy has to be underwritten according to the age and health of the policyholder at that time. When a whole of life policy is taken out, the policyholder has guaranteed insurability for the rest of their lives, regardless of any change in their health.
This means that initial premiums are likely to be higher than term assurance cover, but the plan has far more flexibility. It therefore depends on your personal circumstances as to which plan is likely to best suit your requirements.
Critical Illness Cover
Cash lump sum for those who die or have a critical illness
In recent years, the need for protection for those who actually survive serious illness or accident has become more apparent. It has been described as 'life cover for the living'.
Most plans cover the common conditions such as heart attack, stroke and most forms of cancer, but there is variation on more rare conditions. In addition to specific illnesses, it is quite common to have permanent disability cover. If you become permanently disabled and unable to return to work, the plan pays out. There is however, a wide variation in the definition of 'return to work. Some plans would only cover you if you were totally unable to work. Others have an own occupation? clause so that if you were unable to return to your normal occupation, a claim could be made. This is an extremely important fact to bear in mind when selecting your insurer.
The internet has changed the way we purchase many items and life insurance is no exception. The trend towards term life becoming a commodity was already starting but the internet gave it the final push over the cliff. What fell was life insurance rates and this has generally been good news for life insurance shoppers. Let's take a closer look at what life insurance as a commodity means to you and how to best take advantage of this continuing trend.
First, what is a commodity? Essentially, a commodity is any product or service which becomes less distinguishable in price and or qualify from different suppliers. Toilet paper is a perfect example regardless of promises made in commercials. You can go one step further down the chain and find raw minerals and supplies such as wood pulp and copper (the more traditional use of the word commodity) but it applies equally well to any product for which there is not much advantage to purchasing from one supplier versus another. To contrast, cars are definitely not a commodity. There's such a wide array or pricing, models, options, and levels of quality/service that cars might be the opposite of commodities.
What about life insurance? In spite of the slogans, sayings, and product statements made by life insurance companies, there has been a constant move towards commoditization in this industry. This is good news for you. One of the first things to happen when a product becomes a commodity is that the pricing band narrows. This means that the difference between the most expensive and the least expensive life insurance plan on the market becomes less over time. Why is this important? It means you are more likely to get a better rate. If you really think about it, term life insurance is pretty similar in its intent. There's only so much variation that enters into the equation. This is very different from health insurance where you have a range of everything from basic hospital plans to full blown HMO which are based on an entirely different model. Aside from the difference between term and whole life insurance, there's only so much a carrier can do when comparing apples and apples. Riders, of course, add an extra dimension but core life insurance protection, especially in the realm of term life is pretty similar. So why would there be price discrepancies...especially larger ones? That's the opposite of commoditization and we can say it's an inefficiency. Of course, to the life insurance company charging more for their product than the average cost, it's extra profit (or masks poorer management). As you can see from our life insurance articles, our take is from the point of view of the life insurance shopper so this "inefficiency" inherently means you're paying too much. That's bad.
Why would anyone pay more than they should? The simple (and mostly correct) answer is that they don't know any better. This is where the internet has truly changed shopping for life insurance to your advantage. If a captive life agent/life insurance company is only showing their products, than you're more likely to pay more by default. There may be other carriers or plans that for one reason or another, price better for your given situation (health class, age, area, term amount, etc). You'll never know.
The internet has leveled the "information playing field" and life insurance is all information. There's no physical product. We immediately recognized this and provided our instant term life insurance quoting engine. By providing multiple carriers, plans, and life rates to you one site, we are helping to commoditize the purchasing of life insurance. If only purchasing cars was so easy!