Life Insurance
A life insurance policy is a contract with an insurance company. In exchange for premiums (payments), the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries in the event of the insured's death.
Typically, life insurance is chosen based on the needs and goals of the owner. Term life insurance generally provides protection for a set period of time, while permanent insurance, such as whole and universal life, provides lifetime coverage. It's important to note that death benefits from all types of life insurance are generally income tax-free.
Term life insurance
Term life insurance is designed to provide financial protection for a specific period of time, such as 10 or 20 years. Typically, premiums are level and guaranteed for that time. After that period, policies may offer continued coverage, usually at a substantially higher premium rate. Term life insurance is generally a less costly option than permanent life insurance.
Whole life insurance
Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. Because of the lifetime coverage period, whole life usually has higher premiums than term life. Policy premiums are typically fixed, and, unlike term, whole life has a cash value, which functions as a savings component and may accumulate tax-deferred over time.
Should I buy level term life insurance?
Buying level term life cover depends on your personal circumstances. If you have no dependants and are single, this cover may not be for you.
If you do have dependants, you need to ask yourself how they'd cope financially when you die. If there'd be little financial impact, then you might not need a policy. But if they would struggle, this is a cheap way to solve the problem.
Universal Life Insurance
Universal Life Insurance is permanent insurance that provides protection in case of death, as well as a savings or cash value component. The cash value of a universal life policy is based on the amount of premiums you pay, the declared interest crediting rate and the policy charges.
Unlike Term Life insurance or Whole Life insurance flexible premium universal life policies permit flexibility in the amount and timing of premium payments (within limits), and they generally offer you the ability to vary the death benefit amount based on your circumstances.
