Life insurance is one of the simplest insurance concepts on the planet. If you die your family gets paid a cash sum.
Then why does the insurance industry seem to work so hard to confuse you?
Many insist on calling it life assurance .The difference between assurance and insurance is ----- nothing! It isn’t really life insurance but death insurance, which is why companies try to dress it up in fancy names and confusing jargon. The most expensive mistake you can make is mixing up ‘whole of life’ insurance and ‘term’ insurance. One pays out only if you die within a set period. The other pays out whenever you die.
You do not have to be a maths genius to work out that it is going to cost a lot more to buy a policy where the insurer is certain of paying out, than one where they only have a less than 50/50 chance of paying out.
On the other hand, insurers argue that if you buy term life and are still alive at the end of the policy period you get nothing- but if you buy a whole of life cover you must get a pay out -unless you plan to live forever.
Life cover is taken out to protect your family. To pay off the mortgage, to ensure an income for children, to pay funeral costs. Protecting your family from the financial consequences of an unexpected early death makes sense. Paying large sums of money to insurers to pay out when you inevitably die - may not. The children will be grown up and the mortgage paid off- so is there really any point?
What greatly confuses the issue is that many insurers and some advisors seek to sell you life insurance as a savings and investment product. An inflexible life policy is probably one of the least suitable vehicles for investment around.
In the US, they do not mix life assurance and savings. Most good advisors here follow the same principle, but some products mix the two concepts
As far as we are concerned, life assurance is and should be a protection product.
If you buy life insurance as an investment, then you must never just compare life products, but consider them against bank accounts, bonds, financial deals and the rest.
We are not concerned with, or authorised to comment on, or really very interested, in the investment/ inheritance/ taxation and savings side of the financial services industry.
Buy life insurance as a protection product and you know what amount will be paid out when you die.
Buy life insurance as a savings product, and the payout may vary by what is happening in the stock market, politics, the economy and charges levied by providers.
Unlike health or car insurance, you will not be around to argue your corner at claim time. So it is vital to get the right policy now.
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