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Coming to the conclusion that you need to arrange some life insurance perhaps to provide financial protection for your family or to pay off your mortgage should you die is one thing but another decision that you need to make is which type of life cover is most suitable to meet your needs. In this respect, you could seek independent financial advice as to the best option.
Life insurance can provide peace of mind for your family
Let’s have a look at some of the differences between term assurance and whole of life assurance as this may help you in your decision making process or when discussing things with your financial adviser.
The biggest difference between these two types of life insurance is the period that the policies are potentially in place for. The titles are a bit of a give-away as a standard term insurance policy runs for a specific period of time before it finishes whereas a whole of life insurance policy is in place for as long as you are alive.
For instance, at the age of 30, if you were to take out your first mortgage over a 25 year period you may decide to take out some life insurance so that if you die before the mortgage is repaid the policy would pay out to clear the amount outstanding on your mortgage. An option is to take out a term insurance policy for 25 years to specifically cover the mortgage. If you do not die during the 25-year term the policy would normally end but, by then, you will have paid off the mortgage.
Another decision that you would need to make is whether to take out decreasing term insurance or level term insurance but the differences are covered in an earlier post.
If you had taken out a whole of life insurance policy to cover the mortgage the policy would still continue if you wanted it to do so after the mortgage had been repaid so it could be used for some other purpose such as family protection cover. Equally, if you felt that you no longer needed the cover you could cancel the policy.
Another big difference between term cover and whole of life cover is the cost. It probably does not come as a surprise to read that the latter tends to be more expensive due to the longevity of the policy.
Whole of life insurance policies are normally more flexible than term insurance policies enabling you to increase the amount of cover subject to further medical underwriting. Sometimes, it is even possible to increase the amount of life cover without any more medical underwriting in certain situations such as following the birth of a child.
Although whole of life policies should not be viewed as savings plans they often have an investment element included but term insurance policies do not.
So, as you can see, there are some differences. The decision as to which is most suitable for you can be a difficult one so you may wish to get some independent financial advice.
Term Insurance vs Whole Of Life Insurance
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