Life Insurance
(The weekly series - Pocket Money - where I explain financial basics in fewer than 200 words. Feel free to make suggestions!)
Life insurance is a contract between you and an insurance company where you pay regular premiums in exchange for a lump sum paid to your chosen beneficiaries when you die. Life insurance could cover debt repayment, funeral costs, living expenses or mortgage payments.
There are two main types:
Term life insurance covers a fixed period - perhaps 20 years - and only pays out if you die within that term. Whole of life insurance covers your entire life with a payout whenever you die but the premiums are significantly higher.
The necessary cover depends entirely on your circumstances and your dependents. Decreasing term life insurance offers a payout which decreased over time, although premiums stay the same, this covers a reducing debt burden like a mortgage.
Premiums are influenced by factors like your age, health, lifestyle, length of policy and level of cover. You can include addons like critical illness cover (which covers a serious condition, not just death).
Some life insurance products are investments. With some policies the premiums you pay can accumulate and earn interest or be invested tax free, which creates a fund you can borrow from. This loan would attract interest and be recouped from any payout.
Love Eleanor. xxx
