It’s the new year and a fantastic time to get your financial priorities in order. But which financial decision should you prioritise? Well, after the COVID-19 pandemic, it should be obvious why everyone with financial dependents needs life insurance – the unexpected can, and does, happen. Life insurance provides a financial safety net for the ones you love in the event that the worst should happen to you. But finding a policy is confusing and it’s difficult to decipher the differences between the different kinds of policy.
Two Types of Policy: Term Insurance and Whole Life.
Two of the most popular types of life insurance policy are term insurance and whole life insurance. Let’s take a brief look at some of the main features of these types of policy.
Term Insurance:
- Term life insurance is a policy that lasts for a fixed term.
- Term life insurance does not have a maturity benefit.
- Premiums are still high for older customers or those with health conditions.
- If the policyholder dies during the term, the sum is paid to the policyholder’s nominated beneficiaries.
Whole Life Insurance:
- The term length of whole life insurance is for the entire life of the policyholder.
- Whole of life insurance includes a guaranteed death benefit.
- Upon the death of the policyholder, the sum is received by the policyholder’s nominated beneficiaries.
- More expensive than term life insurance.
- The premiums are higher if you have a bad health profile. For example, if you have any history of substance abuse, a dangerous job or are a smoker.
Which to choose?
‘Which type of policy you opt for really depends on your personal needs as a customer’ says Ian Featherstone of IAE Insure. ‘The obvious thing to consider with term insurance is whether the term will be long enough. For example, if you take out a policy at 27 years of age for 30 years, your beneficiaries will only receive a payment if you die before 57. Of course, you can always purchase another policy, but you risk developing a health condition or being subject to other profile changes that will increase the cost of your policy premiums. You do not have a similar concern with whole life insurance. In other words, whole life insurance is the safest type of life insurance you can purchase as no other type of policy will give you as many guarantees.’
‘However, there are drawbacks to whole life insurance too. The premiums are usually more expensive early in the term of the policy. Although, if you renew your term policy, they will usually arrive at a similar price, while the whole life policy premiums will remain the same.’
Term life insurance, because of its nature, is far more flexible than whole life insurance. ‘If you’re a young customer whose circumstances are liable to change, we usually recommend term insurance’ continues Ian Featherstone. ‘For example, you might have a long-term partner with whom you may get married or have children. This will obviously affect your financial situation and mean you will require more life insurance. With term insurance, it is very easy to add more insurance.’
‘For those people who are looking to invest some of their money, a term policy might be a better choice as the extra money you would spend on premiums with a whole life policy can pay richer dividends when invested elsewhere.’
Talk to An Expert.
It’s always best to talk to an expert advisor when trying to decide which policy you should choose. With a decision like life insurance, choosing the wrong policy can be extremely costly. Depending on your health profile, your lifestyle, future plans and competency with investment, the type of policy that will suit you best will vary so the advice on an expert could prove invaluable.
If you’re concerned about whether you have enough cover or want to discuss what policy is right for you, contact IAE Insure today at info@iaeinsure.ae or call +971 4 396 1878 for a FREE no obligation quote. Visit us at www.iaeinsure.ae.
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