By: Simon B
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Family Life Insurance
It’s a grey area that we all don’t want to speak about, but giving that peace of mind so family do not struggle upon your death covers this in that event.
Life insurance has various types of cover. Some insurance companies do not require a medical and ask minimal questions before they give you the life insurance cover, and other life insurance companies ask more detailed questions and sometimes a medical before they will give you the life insurance cover. You will also pay more if you are a smoker or recently just quit smoking.
If you take out a life insurance policy, when you die, the person named in the policy as the beneficiary receives a lump sum. They can use the money to pay off the mortgage, the children’s education, or day-to-day living costs. Without this money, your dependents may have to sell the house because they can no longer keep up the mortgage repayments.
Buying life insurance is a bit of a balancing act because the higher the payout – called the sum assured – the larger the premiums. What’s more, as you get older and therefore more likely to die, the premiums can climb.
Life insurance comes in two main types:
- Term insurance: If you die during an agreed period of time – say, within 25 years – then the policy pays your beneficiaries cash. The downside is that the policy pays only if you die within the specified term. If you die a day after the term has ended, your loved ones get nothing.
- The whole of life insurance: As the name suggests, under this type of policy, your beneficiaries are in line for a payout regardless of when you die. Die the day after taking out the policy or 50 years hence, and your loved ones receive the money. However, the premiums are high and climb sharply as you get older. Term insurance premiums are generally the cheaper option. The sale of life insurance (also known as life assurance) is big business, and there lots of little policy nuances that you need to take on board. If you have no dependents who will need to be taken care of when you’re gone, you probably don’t need life insurance.
Critical illness insurance
Critical illness insurance pays you a lump sum if you suffer a critical illness. For an illness to be considered critical, it usually has to be life-threatening (i.e terminal cancer or in inoperable diagnosis). For example, cancer or stroke may be considered life-threatening, but about of gastric flu, however unpleasant, isn’t. Critical illness coverage is meant to alleviate the financial burden at a time when you’re at your most vulnerable and unable to work. One of the most common reasons for people being unable to keep up their mortgage or loan repayments is a critical illness.
Critical illness insurance tends to be cheaper than income replacement insurance. From the insurer’s perspective, it’s a one-off, short-term, financial hit rather than a long-term, sometimes open-ended, commitment.