Auto Insurance Quotes ~ Types of Life Insurance Policies (also known as 'Term Assurance') : There are several types of life insurance policy that are available in the market today and this page will give you an understanding of the following life insurance contracts:
- Basic life insurance or Term Insurance/Life Term Insurance as it is better known(please also see out Types of Life Term Insurance Policies page.)
- Permanent Life Insurance
- Universal life insurance (a popular type of life insurance policy under permanent life insurance)
- Whole of life insurance (another of the life insurance types under permanent life insurance)
Basic Life Assurance
Basic life insurance is a very simple type of insurance policy that will run for a pre-determined period of time and will pay out a pre-determined figure should the life assured/s on the policy die. It is relatively inexpensive and is much needed protection for you and your family. These types of life insurance policies can also be taken out solely as security on a mortgage or debt too. Basic life insurance is most commonly term life insurance and there are various types of life insurance policy under this heading, please see our Types of Term Life Insurance Policies page for further details.
For example Mr and Mrs Smith take out a 20 year life assurance policy which will pay out $50,000 on the death of either of the lives assured to the survivor. The policy will have an agreed commencement date of 1 July 2010 and the policy will expire on 31 July 2030. In this scenario the policy is against the life of Mr and Mrs Smith, they are both the policy owners/holders and the lives assured.
A monthly, quarterly or annual premium is paid throughout the term in order to keep the policy in force and valid.
It may be that the policy length or term as it is better known is only available in increments of 5 years with some insurers and the term limit is quite often 30 years.
How long you take the policy out for is completely up to you, for instance a younger couple with a new mortgage and who are yet to have children may take out a longer policy so that the mortgage is covered and should they later decide to have children they are covered for many years of the child's life while they are depended upon.
The amount of cover taken out is also up to you but the insurer can ask for this to be justified. Things needed to be taken into consideration are for example the outstanding value of your mortgage or the living costs of your family.
Variations could be that Mr and Mrs Smith both take out a life assurance policy but the life assured is only Mr Smith, or they take out two with one of them being a life assured on each. These policies will only pay out on the death of the life assured on that policy to the surviving policy holder. Mr Smith could also take a policy out and be the policy holder with Mrs Smith as the life assured and visa versa. The policy holder is always the owner of the policy and the benefactor, the lives assured are simply the people who's live the insurance is taken out against. It can however be possible for the policy to pay out to named beneficiaries, these must be proven to be dependent upon the lives assured.
How Types of Life Insurance Polices are Calculated
The premium payable on the basic life insurance types is calculated using a variety of factors such as:- The gender of the life assured
- The age of the life assured
- The occupation of the life assured
- The height and weight of the life assured
- Medical history of the life assured
- Smoking status of the life assured
- Lifestyle of the life assured, more specifically hobbies and pastimes
The premium will remain the same throughout the term of the policy. If at the end of the policy the lives assured wish to take out a new contract to cover themselves for a further period of time the premium will be different because of current age, insurance company rates and any changes to the above factors that may have taken place since the original policy began.
For the majority of customers the application can be done and the policy started straight away however it is possible for the insurance provider to be a little more stringent.
The application process will consist of a number of questions that must be answered in full, depending on each individuals answers the application will then need to be underwritten. It is possible that further questions may be asked for any irregular answers and also the insurance company may seek to obtain medical information from your doctor if they deem it necessary. In some instances you may have to go for a routine medical examination.
Once the policy has been underwritten and the insurance company are ready to offer standard or non standard terms(if you have a medical history that sees you present more of a risk to the insurance company that the average person the premium can be increased) and if you chose to accept then the policy can begin.
There are other types of life insurance policies where the above cover has additional features, please see the menu for these.People that generally require this life insurance type can be:
- Couples married or unmarried with a mortgage or other debts
- Single parents
- Single people with a mortgage or debts
- Couples married or unmarried with children
We will now go on to talk about further life insurance types, some of these are more than just life cover and will offer the customer an investment aspect as well which will mean that the policy will acquire a value.
Life insurance types - Permanent Life Insurance
Permanent life insurance is the umbrella term used for types of life insurance that do no expire. They combine a death benefit with a savings portion and are deemed as profit policies. The savings element builds to provide the policy with a case value against which the policy holder can borrow money or take an income in way of regular withdrawals. A withdrawal will be made to cover a future financial implication such as paying off a loan or paying college fees for a child.
There are two main types of permanent life insurance which are universal life insurance and whole of life insurance. Below we will talk more about both of these.
In order to borrow against the savings element of a permanent life insurance policy, there is usually some sort of waiting period after the purchase of the policy in order for a cash value to accumulate. Furthermore, if the amount of the unpaid interest on the loan plus the outstanding loan balance exceeds the amount of the policy's cash value, the policy and all coverage will automatically terminate.
Permanent life insurance policies enjoy favourable tax treatment. The growth of cash value is generally on a tax-deferred basis, meaning that you pay no taxes on any earnings in the policy so long as the policy remains in force. Provided you follow guidelines to certain premium limits, money can be taken out of the policy without being subject to taxes since policy loans generally are not considered as taxable income. In addition to this any withdrawals up to the amount of premiums paid can be taken without being taxed.
Life insurance types - Universal life Insurance
Universal life insurance is a very popular type of permanent life insurance in North America. The policy is taken out with an insurer and premiums paid periodically, most commonly monthly. The premium will cover the cost of the life insurance and the remainder of this is credited to a cash value that the policy accumulates. Each month this cash value is also credited with interest and the policy is debited, also each month, with the cost of the insurance and any other fees that the insurer stipulates, such as admin fees, if there has been no premium payment that month. The insurer will decide how much interest is applicable to be credited to the value but this is usually related to certain financial index rates.
As there is a cash value to this type of life insurance it is possible for there to be features such as a policy loan, or for the policy holder to take periodic withdrawals from the policy.
As far as premiums go they are most commonly paid periodically such as monthly, quarterly or annually which can be fixed or flexible. However it is also possible for there to be a single up-front premium at the start of the policy.
There are risks involved with taking out Universal life insurance because of it being a potentially profitable policy. These need to be studies carefully before you take out his type of life insurance and each insurer will have literature available clearly highlighting the risks.
The obvious benefits of life insurance are to cover financial implications upon the death of somebody who is financially depended upon, more often with life term insurance policies because they have no case value. However there are also living benefits of life insurance and many people use life insurance, and in particular cash value life insurance as a source of benefit to the owner of the policy (as opposed to the death benefit which is provides benefit to the beneficiary as we have mentioned in life term assurance). These benefits include loans, withdrawals, collateral assignments, split dollar agreements, pension funding, and tax planning.
Getting the right life insurance types
As you can see there are a range of life insurance types that are available in the market today and these are fundamentally different to eachother. Recognising what types of life insurance policy suits your needs the most, such as do you just require pure protection or do you want something where you are saving money in addition to financial protection is the first step towards getting the right types of life insurance policies and not wasting any time or money purchasing or investing in the wrong contract. If you have any doubt then speak to a financial adviser or give the insurance company a call or email as they have trained representatives there to give you free and impartial guidance. For a more thorough look at term life insurance or universal life insurance please click here.
