Life Insurance can be structured in different ways. The following are simplified examples of the different types of Life Insurance.
Decreasing Term Assurance, ”Mortgage Protection”:
The value of the life cover decreases over time to zero. This is ideal for a Capital and Interest loans where the loan is decreasing. In the example below, if the person dies, the policy will pay out approximately €50,000 after 25 years. It is the cheapest of all the life covers because the life cover is getting smaller as you get older.
Guaranteed Level Term Assurance:
As the name suggests, the cover is level throughout the term of years that has been selected. In this example, if the person dies anytime within the 25 years, the policy will pay out €250,000.
Indexation option: This is where by you agree to a set increase each year. This is to keep ahead of inflation. The life cover increases but so does the premium.
Conversion option: Give you the option of converting the policy without answering any medical questions at the end of the original term.
Waiver of Premium option: It ensures that the policy will continue to be in effect even if the policyholder experiences a loss of income. In short, the policy stays in effect even though the premiums are not being paid.
Whole of Life – A Life Insurance for life with 3 options:
Whole of Life Continuation Option:
This consists of two elements:
- A Term Assurance that will cease at a specified term of your choosing.
- A Whole of Life cover that will continue until paid out.
Importantly – you must select a period and then pay for that period only. The Whole of Life cover continues even though you have stopped paying the premiums. This type of policy can be seen as a funeral savings policy as the money is guaranteed to be paid out when you die.
Whole of Life – Fixed premium:
This provides life cover for the Whole of your Life. The premium and life cover are fixed.
Whole of Life – Reviewable premiums:
This will provide you with life cover assuming you can pay the increasing premiums. There is normally a 10-year review. 5 years thereafter and yearly at the age of 70. This is an older type of Whole of Life and we would not recommend this type of policy as this is very expensive compare to other types of Whole of Life above.
As you get older the cost of the life cover increases. This is because the chance of you dying increases each year. A feature of the Reviewable Whole of Life policy is that some of your premiums are invested. This allows the build-up of a ”Reserve Funds”. The life cover gets more expansive as you get older. The company feeds off this reserve fund to pay out for the Life cover premiums. This will continue until the reserve fund ”Bottoms Out”. At the next review period, the premium will increase to maintain the existing level of cover. There is no limit tot his increase.