Gone are the days when we used to be worried and apprehensive about our loved ones if we were happened to die early. Nowadays, we can shield our family from any kind of dreaded financial situation by buying a life insurance policy. Life insurance is a contract between an insured and an insurer, where the latter assures the former to pay a designated sum of money upon his/her death. This is primarily designed to protect the family of the policyholder against any financial hardship should the latter die within the terms of the policy. The policyholder typically pays a premium monthly or annually and gets the benefit in return for a lump sum amount should when s (he) dies.
Now let us have a look at the different types of life insurance available in the UK –
Types of life insurance:
Given below is a brief explanation of the different types of life insurance in the UK –
Term Assurance – Term assurance is a kind of life insurance where you determine the insurance amount and also the time period you want to be covered for. The policy will only commence paying out the beneficiaries if you die before the termination date of the insurance. There are two primary types of term assurance – 1) level term assurance and 2) decreasing term assurance. In level term assurance, premiums are fixed for the duration of the insurance term, and payments are made should you die within the insurance period. In case of decreasing term assurance, the amount you are covered for decreases over the term of the policy. This type of term assurance is primarily used for debt repayment that reduces over time, such as repayment mortgage.
Family income benefit policy is a type of decreasing term assurance that pays out beneficiaries as regular monthly income once the policyholder dies within the insurance period.
The whole of life assurance – As the name suggests, the whole of life assurance is designed in such a way that offers beneficiaries throughout the life once the policyholder breathes his/her last breath, unlike any term insurance which is only for a specified period of time. With this kind of life insurance, the policyholder needs to pay premiums throughout his/her life until they reach a certain age. There are two main types of whole of life insurance – maximum cover and balanced cover. In the case of maximum cover, the initial premium and the insured sum are guaranteed not to increase for the next 10 years. In the case of balanced cover, the premium depends on the sum to be insured, and the age and health of the insured person.
Income protection insurance – Income protection insurance is an insurance policy, available principally in the United Kingdom. This kind of insurance policy provides benefit to policyholders who are incapacitated or unable to work due to illness or accident. This insurance policy offers a lot of benefits in comparison to other such policies such as accident, sickness, and unemployment insurance. Benefits are paid regularly on monthly basis and are tax-free. The insurance company cannot cancel or refuse to renew the policy provided that the policyholder pays the premiums on time.
There are three primary three types of income protection insurance – long-term income protection, short-term income protection, and accident, sickness, and unemployment cover.
Accident and sickness insurance: This is a kind of insurance policy that offers a lump sum benefit to the policyholder in the event of death, loss of limbs, permanent loss of sight in one or both eyes, and permanent total disablement. Moreover, the benefits from personal accident and sickness insurance policies are tax-free.