Many UK consumers become confused over the best type of policy to purchase, and struggle to differentiate between term life insurance and whole of life insurance. Both types of cover are actually very different so it’s vitally important that all life insurance quotes are carefully compared to guarantee a preferential purchasing decision.
What is term life insurance?
Term life insurance is the most straightforward type of policy purchase in the UK, and only covers the applicant for a limit time period. Typical life term insurance policies are cheaper than whole of life alternatives because there is no guaranteed cash payout. Although monthly premiums are paid in the usual way, protection only extends to the mortality element of a policy. Once the term of the policy is completed, there are no cash benefits to fall back on. A term life insurance policy can only run for an agreed number of years, and this time period will usually shorten as the applicant gets older.
Whole of life insurance
Whole of life insurance is more expensive, but covers the policyholder in two important ways. The mortality element will guarantee a lump cash sum upon the death of the policyholder and this will usually go to an immediate beneficiary such as a spouse or children. However, premiums for whole of life insurance policies are part-invested to build savings that can be ‘cashed in’ at any stage. The longer the policy has matured, the higher those payouts will be.
Term life insurance premiums are dictated by several different factors including gender, age, occupation and lifestyle. In the United Kingdom, there are three different types of policy available. Level term life insurance is the most common type of policy and pays out a fixed cash payout throughout the entire term should the policyholder die.
Decreasing term life insurance works a little differently, but the overall value of a policy decreases as the term matures. If a claim is made during the early stages of a policy term, the beneficiary will receive a larger sum of money but as the policyholder grows older, the prospective settlement decreases. This type of insurance caters for individuals who will have lower outgoings as they get older, and are perfect for those who are likely to be clear of their mortgages by retirement age.
Family income benefit provides regular cash payments to families upon the death of a policyholder instead of a single lump sum, and is a perfect form of term life insurance for young families with sizable financial commitments. Make sure you seek the best life insurance advice before making any decisions which will commit you financially.
