Life insurance is one of the many types of insurance policy that can be bought to secure your future. Like other financial products, there are certain aspects about life insurance which it is important to be aware of.
As the name suggests, term life insurance policies end when a fixed term comes to an end. They run for a fixed period of time which is usually 5, 10, 15, 20 or 25 years.
What is life insurance?
When you buy a life insurance policy, you are paying to provide your dependants with money either in the form of regular payments or as a lump sum after you die.
Just like having fire insurance guarantees that you will not have to face the financial ramifications of a fire breaking out in your premises, having a life insurance policy ensures that those who depend on you will be looked after even when you are no longer around.
How financially secure your dependants will be depends on your financial position before death and the level of cover you buy. It is up to you whether your policy will cover certain elements such as rent or mortgage and also what the nature and size of the payout should be.
You may need to give thought to how the payout will impact any benefits that your dependents may be eligible to receive.
At what age does life insurance end?
There are two widely available types of life insurance:
Term Life Insurance Policies
As the name suggests, life insurance policies of this type end when a fixed term comes to an end. They run for a fixed period of time which is usually 5, 10, 15, 20 or 25 years. It is important to note with Term Life Insurance, your dependants will not receive any payout if you do not die during the term of the policy.
Thus, if the term of a policy is 25 years but the concerned person dies 26 years after purchasing the policy, there will be no pay out. It also means that there is no payout at the end of the policy term if the insured person is still alive either.
Whole of Life Policies
As the name suggests, these policies insure people for a lifetime and will pay out irrespective of when they die. The policy pays out only if premiums have been regularly paid.
What do these policies not cover?
The only life event which is covered by life insurance is death. This type of policy will not cover you and those that depend on you, if you are unable to provide for yourself and your family due to disability or illness. That requires different provision.
A terminal benefit is provided by certain policies but these may not be automatically granted. A terminal benefit is one that covers you for the expenses you may incur as a result of being diagnosed with a terminal illness. To know whether you are covered for such circumstances, you must go through the terms and conditions of your policy carefully.
Generally, each policy has its own list of exclusions. For instance, a policy may not pay out if the cause of death is drug or alcohol abuse. The premium amounts for these policies are usually determined on the basis of your lifestyle. If there are any lifestyle factors which make put your life at risk such as smoking, drinking, drug use or participation in risky sports, you will be required to pay more for cover.
If you have an existing health condition which could be life threatening at the time of taking out a policy, there will be no pay out if you die from the same illness. There are other insurance products that will cover you for disability and critical or long term illness.
Do I need life insurance?
If you have people who depend on you such as school aged children or a partner who doesn’t earn an income of their own, buying a life insurance policy takes care of their financial needs after your death.
Also, if your family resides in a house with a mortgage which hasn’t been completely paid off, there are certain life insurance policies which can make the repayments after you pass away.
There are certain policies which even cover your funeral expenses. The primary reason why people buy life insurance policies is because they do not wish their loved ones to struggle to afford living expenses in the event that they pass away.
Insurance shouldn’t be looked at as a financial liability but a means of protecting your family when you’re no longer around to look after them.