Life insurance: losing a loved on is never easy. Adding financial burden to the grief only increases the strain. There are many reasons to consider life insurance, and it's worthwhile to spend a bit of time to determine whether it's appropriate for you.

Author:Donnellon, Brien

When considering life insurance, factors such as the level and cost of cover, the duration of the contract, the beneficiary and tax implications should be calculated. We will look at some different types of life insurances and their specific characteristics.

Protection and risk insurance

Term life insurance is the most common type of life insurance policy. The premium on a term policy is relatively low when compared to other types of life insurance because it carries no cash value. The policy pays a specific lump sum to the designated beneficiary upon death of the policyholder to protect the policyholder's family by providing cash to replace a salary, provide childcare and education, cover death-related expenses and reduce mortgage and loan payments. Term life insurance premiums increase with age because the risk of death increases as people get older.

Most insurance companies sell term insurance with different combinations of cover. You can choose insured cover, which remains constant or declines, and the term can be for one or more years. The premium can also remain constant, increase or de crease during the policy duration. The various types of term life insurance are examined below.

An annual renewable-term policy is a one-year policy, but the insurance company guarantees to continue providing cover at the level agreed in the first year regardless of the health of the insured person. The premium is recalculated each year and is based on the insured's age at that time. The policyholder has the right to decrease the level of cover.

A level-term insurance policy is perhaps the most appropriate insurance to protect an interest-only mortgage. The amount of cover remains constant for the term of the policy and reflects the fixed level of mortgage debt.

A decreasing-term insurance policy pays out a lump sum that decreases over the contract duration to zero by the end of the policy term. This is often used as a cost-effective way of protecting a repayment mortgage where the debt reduces annually.

Critical illness insurance will pay the policyholder a lump sum upon diagnosis of a specified illness or disease. Major illnesses like cancer, heart attacks and strokes are generally included. Most insurances have waiting periods where, for example, you must first survive for at least 14 days after getting diagnosed.

Policies are financed by regular monthly or annual premiums, but have no cash value. If the insurer pays out on a claim, the plan ends...

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