What’s The Best Life Insurance?
Protecting our families is one of the most important things we can do. But what is the best way to do it? Is life assurance the only solution, or could there be other ways? What is the best life insurance for you and your family? In this post, I explore the options.
What Is It?
The objective of life insurance is to provide financial security to your loved ones. This can be through repayment of a debt (such as a loan to buy a home) or to replace the income you would have earned if you had not died.
The person who takes out the policy is the policyholder. The person whose life is insured is known as the life assured. The beneficiary is the person who gets the money.
Who Does NOT need Life Insurance?
Whilst there are exceptions, life assurance is not something which would normally be recommended to a single person with no debts. This person may find critical illness cover or income protection more suitable.
What is the Best Life Insurance?
Life insurance is a promise to do something if you are no longer living. When choosing a company to provide the policy they should have:
- Regulatory approval to operate in your country of residence
- Be financially secure
- Have a good reputation
- Offer a competitive product.
Two Types of Family Protection
There are 2 generic types of life insurance. They are Term and Whole of Life.
Term Life Assurance: this product provides the life assured with an agreed amount of cover for a fixed period. There is no investment element, it is pure insurance and therefore acquires no value at any time.
Term Assurance is provided in 2 versions: level and decreasing. Level term has the same amount of cover for the whole of the term of the plan. Decreasing, which is cheaper, reduces over time. Decreasing term is useful fo loans which decline in value over time.
Whole of Life Assurance: this product has no fixed period and will therefore provide you with insurance for as long as you need it. This is a feature known as ‘Guaranteed Insurability’ and is subject to you paying the premiums due. This type of product may accrue some investment element dependent on the growth achieved by the underlying fund.
Both plans have their benefits and drawbacks. Term life is the cheapest and simplest. However, it expires and if no claim occurs then there is no return. Whole of life provides a potential return in later years but is much more expensive and has complex charges with little or nothing being returned if you cancel in the early years.
Family protection is essential. This short post shows who is unlikely to benefit from life insurance and the various options available. The best option for your family will depend on what you need to protect them from. For example, decreasing term assurance is often recommended to cover loans whilst whole of life is useful for tax planning.