Term insurance versus Whole-of-life – Which should you choose?
Life insurance is a versatile product; there are many kinds of policy available, each offering different levels and types of cover for varying periods of time. When someone decides to take out life assurance they are often faced with making the choice between a term policy and a whole-of life policy. Both types of contract have their advantages, and can be used to meet different financial objectives.
This is the simplest form of life insurance. It’s called ‘insurance’ because it provides cover against an event that might take place within a certain period of time. You choose the amount you want to be insured for, and the number of years for which you want to be covered. People typically take out cover for ten, 15 or 20 years, depending on their circumstances. If you were to die within the term of the policy, it would pay out to your beneficiaries. If you don’t die during the term, the policy doesn’t pay out.
Term insurance can provide level cover, which means the amount of cover and the premiums paid remain the same throughout the term of the policy. Alternatively, you can choose decreasing or reducing term cover. In this case, the amount of cover provided decreases over the term of the policy. This type is often taken out in conjunction with a repayment mortgage, as the cover goes down at a predetermined rate to cover the reducing amount of mortgage outstanding.
This type of policy is different in that the policy will pay out a tax-free cash lump sum whenever you die, provided the premiums are up-to-date. In other words, a claim is assured, hence the name. The premiums will be higher as a claim is inevitable. Whole-of-life assurance can be used to leave money to your heirs, cover expenses such as funeral costs, or provide funds to pay an inheritance tax bill.
If you take out a whole-of-life policy and write it under trust, the policy doesn’t form part of your estate on your death, and the benefits payable under the policy can be paid direct to your beneficiaries, without the need to wait for probate to be obtained.
With some plans, you keep paying premiums until you die; with others, your premiums stop once you reach a certain age but cover continues until you die.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
If you want to discuss what type of insurance is best for you, contact us using the number below.
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