There are two basic categories of life insurance: whole life and term policies. Both are available in various forms with different payout options to suit each particular client’s requirements. As its name suggests, if you decide to take out a whole life contract, you’ll be covered from the date of purchase until the day you die. When you’re selecting a policy of this kind, you can usually choose between balanced cover – with a set monthly premium throughout and a guaranteed fixed payout – or maximum cover, where the premiums and payout depend on the performance of investment funds to which your cover is linked. But what about term policies? Why might you choose one, and what are the available options? We’ll explore this type of cover below.
What is Term Life?
Term-based cover refers to a policy that is applied over a set amount of time, paying out if you die before its termination. There are a variety of lengths available that may be chosen for numerous diverse reasons. For example, many individuals take out term life insurance to tie in with a mortgage. They will arrange for the cover to last for as long as the mortgage term does.
There are a number of different kinds of term contacts, including decreasing and increasing term policies. A decreasing policy is popular among those who have taken out cover to tie in with a mortgage. This is because, as time goes by, the amount that will be required to totally pay off what you owe on a property will shrink. A decreasing term policy can be arranged to reduce alongside it. Increasing policies are often chosen in order to keep up with inflation and other factors, in order to grant the insurance’s beneficiaries a set payout. Level term policies are perhaps simplest. You pay a fixed monthly amount throughout the term, without the premiums or payout receiving any adjustment for inflation.
You can also choose between convertible, renewable and reviewable cover. Convertible means that you could opt for a policy that can be converted at any time into a whole life alternative. Renewable means that you can arrange to restart your existing cover when its term draws to a close (usually with updated premiums) without your health being re-checked. Reviewable means that your premiums will be fixed for a period of time, often five years, and then continues on a variable basis.
Selling Your Life Insurance
If you are considering selling your term-based insurance via a viatical settlement, it’s important to note that you can only do this with a convertible policy. This is because only whole life cover can be transferred in this manner. It’s possible to estimate the value of your converted whole life insurance policy for this purpose in seconds.
Both whole life and term-based policies offer a range of payout options, with the most common including family income benefitand payouts in a trust. The first allows you to arrange for the final sum to be paid to your policy’s beneficiaries in monthly installments for a set period of time, while the latter distributes amounts directly to chosen beneficiaries.