Types of Life Insurance Policies

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Here at Quick Quote Protect, we want you to understand your life insurance options in full – after all, we’re here to help not to hinder!

This article is here to answer some burning questions – starting with:

What are the various kinds of life insurance?

At Quick Quote Protect, we work to provide the best life insurance policies and other related products. When talking about life insurance (sometimes called life assurance), there is one common factor – it pays out a lump sum to your beneficiaries when you pass away.

Life insurance never benefits you directly – it is there to help those you leave behind cope financially.

Our two main related products (Critical Illness Cover and Income Protection) both deal with helping you directly with your finances should you be unable to work due to an illness or injury (specific to your policy). For more information on these types of cover, take a look at our useful guides:

• Critical Illness Cover: Do You Need It?
• Do You Need Income Protection?
• Income Protection Insurance and Being Self-Employed

There are four main types of life insurance:

Whole of Life insurance

Whole of life (WoL) insurance is the most simple policy to understand. Whole of life covers you until you die, no matter when that might be, and no matter the circumstances. At that point, it pays out a pre-agreed amount to your beneficiaries (or into your estate).

Due to the guaranteed nature of WoL insurance (it will always pay out eventually) the premiums are higher than some of the other alternative.

Whole of life insurance tends to be used for:

• Covering funeral costs – it is horrible for those grieving to also be faced with the financial difficulty of paying for your funeral. A small WoL policy can prevent this burden and give you the funeral that you would like.
• Dealing with inheritance tax – if your estate is considerable and you know there will be inheritance tax (IHT) to pay, then creating a WoL policy to cover this amount and placing it in trust for that specific purpose can mean your heirs can receive the estate without having to sell part of it to pay for the IHT.
• Small inheritances – Due to the higher cost of premiums on WoL policies, there may be better ways to provide an inheritance to your children or grandchildren (for example, level term insurance), however, WoL remains a popular choice for this and is very suitable in the right circumstance.

For more information on whole of life insurance, inheritance tax or other associated subject, we recommend the following articles:

• Whole of Life Insurance
• What is Inheritance Tax and How Can Life Insurance Help?
• Putting Your Life Insurance in Trust: How Trust Funds Work

You can find more related articles on our resource page here.

Over 50s insurance

Over 50s policies are guaranteed acceptance whole of life insurance policies for those over 50 who may have suffered from a previous medical condition.

The main advantage of an over 50’s life insurance policy is that there is no rejection based on medical grounds – if you are over 50 years old, then you are guaranteed a policy, irrelevant of your health status. Although this means the premiums are slightly higher than a similar whole of life policy, it provides a system of life insurance for everyone.

Like whole of life insurance, over 50s insurance is perfect for covering funeral expenses.

For more information on over 50s insurance, we suggest the following articles:

• Over 50s Plans Explained
• The Pros and Cons of Over 50s Life Insurance

Level term life insurance

Level term insurance (also called level term assurance or LTA) is one of two types of life insurance that is tied to a length of time – the ‘term’ in the title. This means that you are only covered during that period and once it runs out, the insurance cover is considered complete and is no longer in place.

Two things that are important to understand with term cover are:

• Cover is only provided if premium payments are up to date – a missed direct debit could result in a lapsed policy and you would have to reapply for insurance.
• Cover stops once the term ends – should you die a single day later, no insurance will be paid out.

Level term has a number of advantages over whole of life cover, but the largest is that by setting an end date, this type of insurance is no longer guaranteed to pay out – from the insurance company’s perspective, you could outlive your insurance and all the money paid to them is profit.

Some people see this as a bad thing – after all, get to the end of your term and where has all that money gone, but it is better to see it as a win-win situation. If you reach the end of the term, then you are still alive – and that’s a win! Plus, the cover during your term is often very substantial and should it be needed, it will often be the difference between financial stability and ruin.

Because of this opportunity for the insurance company to benefit from your long life and good health, they are willing to offer you substantially more payout-to-premium than you would get for a similar whole of life policy. Where a £500,000 whole of life policy would simply not be financially viable for most families in the UK, it is a reasonable level of cover with a level term policy.

Level term life insurance is set at a single lump sum payout – if your policy is for £300,000, then that’s the amount your beneficiaries will receive. In this way it differs from the fourth type – decreasing term insurance.

For more information on level term life insurance, please read the following articles:

• Level Term Life Insurance (LTA) Explained
• Level Term Vs Decreasing Term

Decreasing term life insurance

Also called decreasing term assurance (DTA), decreasing term life insurance is typically used to cover a mortgage.

As the amount left to repay on your mortgage decreases over time as you make your regular payments, the life insurance policy also drops alongside it. At the start of your mortgage, the amount a DTA will pay out is equal to your total mortgage, but by the end of your policy, it will only be worth a small amount, paying the few thousand (or even hundred) that’s left on your mortgage.

A DTA policy shrinks in line with your mortgage and has a term length equal to that mortgage. Should you pass away, it has one job – and that’s to make sure your family is not stuck trying to pay for the family home.

Because of its specific purpose, the defined term and the decreasing nature of the sum assured (the amount of the lump sum that’s paid out), decreasing term insurance is very affordable and should be part of the financial portfolio of anyone with a mortgage.

For more information on decreasing term insurance and the difference between level term and decreasing term insurance, please look to the following articles:

• Why You Should Have Life Insurance When You Get a Mortgage
• Decreasing Term Insurance: What Is It?
• Level Term Vs Decreasing Term

Life insurance with Quick Quote Protect

At QQL, we can provide you with expert advice regarding your life insurance. Call us today to speak to one of our friendly advisors who will be able to discuss your specific circumstances and recommend the right type of insurance to suit you, all obligation-free.

Fill in our short contact form for more information or for someone to get back to you, or simply give us a call today for the best life insurance policy in the UK!