What Should I Look for In UK Life Insurance?
Life insurance provides financial relief to surviving beneficiaries when the insured dies. Purchasing a life insurance contract represents a major decision so some thought and research should go into the process.
When deciding what type of life insurance to purchase, UK residents are often faced with choosing a term or whole life policy.
Each type has advantages and even many insurance professionals do not agree that one is best in all circumstances.
Differences Between Term and Whole Life
The main difference between term and whole life insurance is the timeframe covered by the contract. Term life insurance ends after a specified number of years ranging from one year to as long as 40 years. When the contract ends, the individual either elects to remain uninsured for the remainder of his or her life or purchases a new life insurance policy.
Life insurance premiums increase with age so the new policy may be much more expensive due to the advanced age and, possibly, health condition of the individual.
Whole life insurance lasts for the remaining lifetime of the insured. Whole life premiums can be three to four times higher than premiums for term life. However, there is no need to take out a new policy later when the premium will be even higher and health issues could cause the application to be rejected.
Whole life policies can be cancelled at any time but the policyholder will not receive a refund of premiums already paid.
Another major difference between term and whole life policies is that term life has only an insurance component while whole life represents both protection and an investment. Beneficiaries of a term life policy receive only the face value of the policy.
Beneficiaries of a whole life policy receive both a minimum guaranteed death benefit and investment proceeds.
Though the initial death benefit may be the same for a term and a whole life policy and earning investment gains may sound attractive, there are no guarantees that the investment will earn money. The policyholder is restricted to a particular investment and must pay into it while the policy is in force.
If the investment does not perform well, beneficiaries of a whole life policy may receive less money than those of a term life policy do.
Term and Whole Life Premiums
Premiums for both term and whole life insurance are established when the contract begins and are not subject to change. Therefore, they are leveraged over the contract term. Since a whole life policy typically lasts longer than a term life policy does, this explains why whole life premiums tend to be higher.
The investment component of a whole life policy is another reason for its higher premiums. Though the investment is taxed and not guaranteed to provide a return, the policy owner may borrow against it.
So, which type of policy is the best? Whole life insurance is typically recommended for wealthy people. These individuals can write a whole life policy in trust and use its proceeds for estate planning. Whole life is also recommended for people who are in their 60s or older.
Many life insurance companies do not approve term life applications from people who are older than 50 or 60. This leaves whole life as the only option.