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Life Insurance

Life Insurance Policies

Life insurance is generally divided into two types: term life insurance, which covers a set period of time, and permanent life insurance, which is designed to stay in effect for the duration of the policy holder’s life. Additionally, if you are a member of an organisation or are employed, you may be eligible for group life insurance. Group policies can be of either type, and are usually available at more favourable rates and terms than can be obtained by an individual alone.

Term Life Insurance

As its name suggests, term life insurance is meant to cover a preset period, or term, and then end; if the policy holder dies before the end of this term, payment is made to the designated beneficiary of the policy. Otherwise the policy ends or is renewed without paying out money to the insured. Because term life insurance limits the insurance company’s level of risk, it is usually far cheaper than permanent life insurance. Term life insurance is available to purchase for terms of one year to thirty years, and in some cases even longer. One specific form of long-duration term insurance is mortgage life insurance, which is designed to pay off your mortgage in the event of your death. Mortgage life insurance policies have the same duration as your mortgage’s life, which can be as long as forty years in some cases.

Permanent Life Insurance

Most permanent life insurance policies cannot be cancelled once they have been issued. This makes the process of underwriting, or determining the likely risk to the insurance company in issuing a policy, much more important than in term life insurance. Insurance companies will look at your general state of health and your likely life expectancy, using predictive tools called actuary tables. This type of life insurance is generally divided into whole life, universal life, and endowment subtypes.

Whole life insurance policies

 take into account the actuarial likelihood of the policy holder’s death at any given point during the length of the policy, and a flat-rate annual premium is set that does not change materially over time. This means younger people will pay a higher rate initially, but will not see their premiums increase as they grow older and more risky to insure. These policies can usually be borrowed against, reducing the payout but allowing access to cash when needed during the life of the policy.

Universal life policies

 are similar to whole life, but usually include an investment element allowing the maximum death benefit to be attained earlier than in traditional whole life policies. Depending on the type of policy, premiums may go up as the individual ages, or may cease altogether if the full amount of the death benefit has been paid in full. As with whole life policies, these can sometimes be borrowed against to provide ready cash.

Endowment plans

 are a form of life insurance where, once a preset amount (usually equaling the death benefit) has been paid into the policy, a yearly endowment of a set portion of the death benefit is paid yearly until the policy holder’s death. While these can provide a supplement to retirement income, the premiums are much higher due to the possible length of the payout period and the risk that insurance companies assume by guaranteeing these payments over time.


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