Videos | January 5, 2012

What are the different types of life insurance?

The reasons for buying life insurance are fairly straightforward - then comes the issue of selecting the right product for individual circumstances.


This Be Good at Money video tutorial details choices available when deciding on life insurance. Because of the range of options, it might be a good idea to become familiar with what is on offer and to understand the basic principles that underpin the options.

Principle 1: Temporary or permanent protection
The first principle that underpins life insurance products relates to duration - or whether a policy offering temporary or permanent protection is better.
Life insurance offering temporary protection is called 'term' life insurance, where the 'term' is the number of years covered. Whole of life insurance, on the other hand, tends to vary more from country to country and may offer coverage for the whole of the policy holder's life.
The video When should I get life insurance and how much do I need? goes through events that might influence a policy holder's level of coverage, such as whether they have a mortgage, children and financial commitments. Premiums for term life insurance tend to be lower than whole of life insurance.

Principle 2: Mixing protection with savings and investment
In addition to providing a financial safety net, life insurance can also be used as a savings tool. An endowment product, for example, works in a way that the insurer pays out a lump sum at the end of the contract. The lump sum can be used for a wide range financial goals. Under this arrangement, often beneficiaries may still receive the payout if the policy holder passes away before the end of the term - protecting the savings. It might be possible invest part of the premiums in the share market, giving the possibility - but no guarantee - of higher returns.
If you use life insurance as a form of saving, it might pay to compare the fees and conditions with other savings products.

Life insurance must suit your needs
The two principles can be mixed and matched in an array of policies. Options include adding cover for a range of risks or degree of protection.
But remember: the more add-ons, the higher the premium usually is. Whatever product you choose, life insurance must suit your individual needs and circumstances. If you're unsure whether a product does, it might be wise to talk to a financial advisor.

Life insurance

eZonomics team
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