There's always a first time for everything, and getting Life Insurance is not exceptional. The question in today's ReiVRE: Money Talk-Life Insurance is – "How do you understand about types of Life Insurance?"
Life insurance includes 'investment-type' and 'term' insurance. Investment-type insurance includes policies that pay out on a certain date or when you die. Term insurance pays a lump sum if you die before a set date.
With investment-type life insurance you normally contribute monthly to a policy. Some policies only pay out when you die. Others pay out a cash amount on a specified date or on death. The amount paid out by investment-type policies depends on how well the investments in the insurance fund have performed.
Policies that pay out if you die, and if you don't
- endowment policies
- maximum investment plans
- with-profits bonds
- unit-linked bonds
- income and growth bonds
- other life insurance which builds up a value that you can cash in
Policies that only pay out if you die
- whole of life insurance
Investment type life insurance can be expensive compared with traditional investments. Find out more on the Financial Services Authority (FSA) website.
Term insurance
Term insurance is usually a cheaper way of providing protection for your dependants should you die, with the monthly payments generally being a lot lower.
The policy guarantees to pay out a set amount if you die within a stated period of time, but doesn't pay out anything if you survive the term. The term could be, for example, the number of years left on your mortgage or the number of years until your children are financially independent.
Term insurance is sometimes called 'protection only' insurance.
How to shop around for life insurance
Whether you're buying investment-type life insurance or term insurance it's worth shopping around. Key points to consider include:
- suitability for your needs
- charges
- return (investment-type insurance)
- risk (investment-type insurance)
- flexibility (what happens if you miss a payment or wish to cancel or switch?)
- terms (conditions or restrictions)
There may also be other factors to take into account, depending on the type of insurance you're buying.
'Keyfacts' documents to help you shop around
Insurance companies or brokers selling life insurance are regulated by the FSA. Under FSA rules they must provide you with standard format ‘Key facts’ and ‘key features’ documents to help you shop around.
These documents help you compare:
- the service they offer (advice or information only, whose products they choose from in the market and how they charge)
- the key features of any insurance policy they recommend or provide information on
The difference between information and advice
You can buy insurance after getting advice, or based on information only after shopping around from life insurance companies.
The difference between advice and information
When you get insurance advice, the broker or adviser looks at your individual circumstances and needs and recommends a policy to meet them. This often involves a face-to-face meeting, but you can get advice in other ways, for example by telephone, email, or through the post. Under FSA rules, if the advice turns out to be unsuitable you have the right to complain and, in some circumstances, may be able to claim compensation.
Buying without advice
UK firms that sell insurance without advice still have to follow FSA rules, for example by providing you with certain information about their service and products. But if you buy this way it's for you to decide whether or not you think the policy is suitable for you. If things go wrong it may be harder to complain.
NB: For more valuable information and guideline visit: Life Insurance
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