There are a number of different types of cheap life insurance policies on the market. These different policy types offer different levels of cover, meaning anyone looking to secure life insurance needs to carefully consider their individual circumstances and requirements, before deciding on a policy. These are the four major types of life insurance policy and an overview of what each offers.
Whole-of-life insurance
This type of policy pays out an amount of money, known as the ‘sum assured’ when the policy-holder is either diagnosed with terminal illness, or dies – thus the premiums for whole-of-life insurance are amongst the steepest, because it offers a guarantee of payout. Many whole-of-life insurance polices also involve the insurance provider investing a certain amount of your monthly premium into a savings fund. As it will be your money that they are using, it can be wise to investigate how well the company’s funds have performed as investments in the past, before deciding on a company to go with.
Term insurance
This pays out if the policyholder becomes terminally ill or dies – much like whole-of-life insurance. The major difference is that it only pays out if either of these events occurs within a previously agreed time span. While this may seem less appealing, the person taking out the policy – not the insurance company – decides the agreed period that the policy will cover. Thus it is simply advisable to opt for an agreed length of ‘term’ that suits your personal circumstances.
Endowment insurance
This offers something comparable to a savings scheme incorporating life insurance and has elements in common with both whole-of-life and term insurance policies. Under an endowment insurance policy, you will decide on a term period for the policy to cover, which is usually no less than ten years. Should the policyholder fall victim to death or terminal illness during this term, the policy pays out; but if this is not the case, they receive a sum of money referred to as the ‘maturity value’ of the policy. Again, as with whole-of-life policies, a proportion of the monthly premiums is invested, with anything earned as a result of the performance of this investment being added to either the insurance payout or the maturity value, as required.
Joint insurance
This is a policy that a couple signs up for together and which usually pays out on the death of one of the couple – at which point the policy ceases. Therefore, were the other half of the couple to die, dependents would not receive anything under the terms of such a policy.
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