It begins with our parents. Out of love and concern, they insure us for as much as they can afford with the intention that, upon reaching the age of majority, the accumulated funds will see us safely out into the big, bad world.

As we get older and start accumulating things on our own, our bank decides that we are worth a bit too and makes sure we reserve a stash of cash for its coffers upon our demise should we not completely own outright our home, car, 50 foot schooner, etc. And of course, our spouses all value us more than anyone else could…plus they have the policy documents to prove it…

The realm of the Life Insurance Policy is a confusing and, somewhat murky one. With so many different types of policies to choose from, the prospect of choosing the right one can seem a daunting task indeed.

There are basically two types of Life Insurance policies and, within each, different set-up styles.

1. Term Insurance: The policy cover is for a specified time period and premium rate is set. If the insured dies during that period, the Death Benefit is paid to the beneficiaries.

o Renewable Term Insurance guarantees the insured the right to renew cover after a specified time without submitting to further medical examinations or providing proof of employment. In most cases renewable term insurance premiums can be paid yearly and the policy, able to be renewed up to the age of seventy years.

o Re-entry policies usually have lower premiums than guaranteed rate ones, however, accessing cover this way is not guaranteed. Basically, when the specified period of a term life policy ends, the insured may apply for new cover – or “re-entry”. Acceptance of the application, however, is dependent on a medical examination and not guaranteed. It is possible, therefore, that if the applicant's health has markedly deteriorated during the period of guaranteed cover, he or she will no longer be insured. The applicant may still find coverage but it will most likely be at a much higher rate.

It is recommended for Term Life policies that the term chosen be for the longest coverage realistically needed. This will ensure that insurance remains available in spite of the natural deterioration in health due to age.

2. Cash Value: Provides the insured with redeemable cash value in addition to Death Benefit coverage.

o Whole Life Cover is the traditional Life Insurance policy. It basically covers the insured until death. The policy does not have to be renewed like a Term policy. As long as the premiums are paid, cover is held. The premium rates remain the same for the life of the policy and part of those premiums are invested, growing at a guaranteed rate of interest. There are additional benefits to this type of insurance including tax breaks and the ability to borrow against the cash value, usually at a better rate than other lenders.

o Universal Life Cover is similar to Whole Life Cover, however, the premiums may be adjusted up or down by the insured. The way this works is that the whole premium is initially paid into the cash value of the policy, growing at a guaranteed minimum rate of interest. The policy and death benefit costs are then deducted.

As with Whole Life Cover, the cash value growth is tax-deferred and the insured may borrow against it or even partially withdraw funds from it. As the cash value grows, the insured may lower the premium, even choosing to allow the fund to totally cover it. Caution must be taken, though, to ensure the policy doesn't lapse.

o Variable Universal Life allows the insured to choose the investment mix for the cash value of the policy. This has the potential for a higher rate of return, however, it is also a higher risk investment.

o Variable Whole Life again allows the insured to choose the investment mix, with all the consequential benefits and risks.

Overall, Life insurance is a good idea. More than a mere morbid money upon death facility, it is also a vehicle by which one may access finance at considerably more favourable rates than banks. It allows for the accumulation of funds on a tax-deferred basis and, most importantly, puts the mind at ease, knowing that those dearest to us will be cared for should we leave the planet first.