Explained: Different Types of Life Insurance Policies

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When it comes to understanding the different types of Life Insurance out there, you can be excused for being left a little confused by the seeming myriad of options available. What’s more, many life insurers needlessly complicate matters still further by breaking down each type to their lowest common denominator.

But that’s where we differ, as here at Quick Quote Protect we aim to strip away the non-essential layers and tell you exactly what you need to know. No more, no less.

This dedicated page offers you an easy-to-follow introduction to the primary Life Insurance types you can choose today. And most importantly, describes the key variations between each one to give you a clear idea of just which policy might work best for you; based on your personal circumstances.

Kicking Life Insurance things off then, and simplicity itself dictates that there are but two main types of Life Insurance policy you ever need worry about (although ‘worry’ isn’t the operative word if you do your dealings through us, more like, ‘not worry about’).

Namely ‘Whole of Life Insurance’ and ‘Term Life Insurance’. As we hinted at the top, it needn’t be any more stressful than this. A or B? The first one, or the second one? It’s like choosing between cake and ice-cream for dessert.

Going out or staying in on a Friday night? Deliberating over a job you love and a job you hate (but which pays well). Your best friend, or your partner? Ah, yes. OK, then having just the two options isn’t ALWAYS a walk in the park. But getting back to the Life Insurance options, and it really doesn’t need to be any more taxing than making a relatively straightforward decision, arrived at by digesting the following core facts regarding both types of policy. So here goes….

Term Life Insurance is recognised in the industry as the most common policy signed up to here in the UK, which is effectively where a policyholder subscribes to individually-tailored coverage for a fixed period of time. This can be altered accordingly if you plump for the ‘Decreasing Term Life Insurance’ subtext, which we’ll explain shortly. But in a nutshell, this means potential pay-outs shrink year-on-year, typically in line with a repayment mortgage.

Alternatively, the Whole of Life Insurance version of events means that whenever the policyholder passes on, the insurer would make good with regards to the pay-out. The flip side of that is that the longer the policyholder lives (a positive in so many ways), the longer they’re paying premiums; which can continue well into old age. Also, it tends to work out more expensive than the Term Life Insurance, while we’re talking premiums.

How Do I Figure Out What Type of Life Insurance Policy Best Suits My Needs?

As good a starting point as any in helping determine what type of Life Insurance plan works in your favour is to grab a pen and paper (or create a spreadsheet on your laptop, given that it’s 2017) and draw up a list.

A list which effectively highlights the underlying reasons you’re currently looking for Life Insurance cover. This could, of course, be for any number of very good reasons, such as;

• You’ve just bought a new home (a Life Insurance pay-out could ensure that your partner/family settle the outstanding mortgage after your death),
• Are starting/raising a family (a Life Insurance pay-out could provide for them – in the absence of a regular income coming into the household - while they’re growing up; should your income dry up or, like the policyholder, suddenly cease to exist),
• Plan on leaving a legacy (a Life Plan could potentially provide surviving relatives with an inheritance in the event of your death)
• Safeguard your own future funeral costs (such policies could guarantee families lump sums to use towards paying for the policyholder’s funeral).

Drawing Like-for-like Comparisons between Term Life and Whole of Life Insurance Policies

So let’s now assume that we’ve piqued your interest and wish to seriously pursue them. Therefore you’ll need to see a blow-for-blow account of what both Life Insurance policies offer; yet in Layman’s terms, obviously.

Thankfully below we have listed the main talking points from both Life Insurance type sides of the argument/discussion, which will (hopefully) once again furnish you with the stand out features of both:

Purpose

• Term Life – Essentially a temporary means of Life Insurance cover which amongst other things allows the policyholder a little more freedom/wriggle-room, seeing as they’re not signing up to the policy for the rest of their natural. Rather a pre-defined passage of time (usually 1, 5, 10 or 20 years from the outset). Also very handy for securing a mortgage.
  
  
• Whole of Life – As the name implies, pretty much for the long haul. Or until such time as the policyholder decides on calling it a day; either voluntarily or not, as fate dictates. Ideal for those looking to secure the long-term financial futures of their nearest and dearest, should the worst case scenario ultimately play out.

Duration

• Term Life Insurance– For as long as the policyholder pays the premiums, this popular type of Life Insurance plan extends its coverage. Fixed term options include 20 or 30 plus years’ protection, should the policyholder be looking to roll it out ad infinitum. Also worth noting that you can always convert an existing Term Life policy into a whole of life policy, if and when needs be.
  
  
• Whole of Life – The clue’s in the title with this one, to be perfectly honest. Coverage extends to the policyholder’s entire life and times.

Premiums

• Term Life – While the insured party is young, the premiums remain competitively priced, however, they do tend to rise with the policyholder’s advanced years
  
  
• Whole of Life – It’s six and two thirds this. As on the one hand, they are on average more expensive from the get-go (when directly compared to term life), they remain the same throughout the course of the policy’s life. And therein, the policyholders. So, theoretically (and in practice in the majority of instances) the premiums work out cheaper than term as you grow older and potentially unhealthier

Pay-outs

• Term Life – Pay-out will only ever amount to the insurance coverage, while it will only settle the sum insured should the policyholder die when the policy is effective. If you die after the policy is terminated, no payments are due
  
  
• Whole Life – Pay-out is calculated as the sum insured, together with cash value at the time of death; less any unpaid cash value loans. Final settlement is provided upon the insured’s death for as long as the policy remains in force

Advantages

• Term Life – Cheaper at onset, plus significant premium savings if you tick the ‘decreasing term’ box. You could, potentially buy term and invest the ‘premium savings’ yourself, for a higher rate of return as compared to that offered by a whole life policy
  
  
• Whole Life – Cash value increases over time, earnings on cash value tax-deferred, can facilitate as ‘forced savings’ (bearing in mind policyholder won’t have easy access to the cash value), which can subsequently be used to fund retirement

Disadvantages

• Term Life - If a claim isn’t made during the ‘term’, the policyholder wipes the slate clean and starts over; only with a higher premium rate, risk of becoming ‘uninsurable’, based on the policyholder becoming registered disabled or receives critical illness diagnosis
  
  
• Whole of Life – Premiums expensive to begin with, accumulation of cash value takes time (typically gains observed after 5–10 years into policy), returns rate re cash value lower when contrasted with alternative investment plans

Finally, returning to the subject of the costs involved in Life Insurance premiums, and suffice to say that a few personal stats have a habit of influencing the premiums individuals pay. For example the person’s age, their health (including examining the family medical history) and their lifestyle, while occupation also plays a pivotal part in determining quotes.

Should your career involve dangling precariously from the side of The Shard in the capacity of a window cleaner, then the chances are your premiums will be sky high too. The same general rule of thumb might be applied to the listing of hobbies & interests too. So if you enjoy pot-holing in your free time, don’t be surprised if you end up forking out more in Life Insurance premiums than in instead you cited participation in backgammon as your main pastime.

To learn more contact us today, one of our trained advisors will be happy to provide you with a free no obligation quotation.