Life insurance policy
What is a life insurance policy?
A life insurance policy is an insurance policy which will pay out a lump sum to the family of the customer, in the event of the customer’s death. A life insurance policy, which is commonly taken out at the same time as a mortgage, or when a customer has children, can be the difference between a family being able to continue their previous standard of living in the event of a customer’s death, or not.
Why do I need a life insurance policy?
The most common reason someone would take out a life insurance policy is to make sure that the customers financial obligations are fulfilled, even after their death when they are no longer able to earn money.
When asking if you need a life insurance policy, ask yourself how your family would cope financially if you were to die tomorrow. Who would earn money? Who would take care of childcare? Who would pay the mortgage?
In many situations, the answer is the family would really struggle, but life insurance can prevent this. By taking out a life insurance policy you can guarantee that your family will receive a lump sum payment in the event of your death, which would pay off the mortgage, and provide financial support while the family got back on their feet.
Types of life insurance policy
There are two main different types of life insurance policy. The most popular is term life insurance, and this provides life insurance over a particular term, usually until a mortgage is paid off, or until the family would no longer miss the customer’s income. A term life insurance policy is rarely offered past a customer’s 60th or 70th birthday, meaning the majority of customers will outlive their policy. This makes it cheaper than the other form of life insurance.
The other type is whole life insurance, which covers a customer for their whole life, guaranteeing a payout at whatever age they die. This form of insurance is far more expensive than a term life insurance policy, because the insurance company will always have to pay out. Therefore they must take at least the value of the payout from the customer during their lifetime in premium payments, or they wouldn’t make any profit.