Introduction
Life insurance is designed to financially protect your loved ones in the event of your death. Coping with the grief of losing a family member is never easy, but knowing that you have protected your loved ones from unnecessary financial burdens can give you peace of mind that they will be cared for should the worst happen. If you have no family as such, you may wish for your life insurance pay-out to help a dependent business partner or close friend instead. Life insurance is not compulsory, but it can help your dependents to cope when you are gone.
There are, broadly speaking, two types of life insurance: Term Insurance and Whole-of-Life Insurance. Whole-of-Life Insurance is sometimes referred to as Life 'Assurance' as it is guaranteed to pay-out. Having said that, some insurers also call Term Insurance 'Term Assurance' so be aware that the terms 'insurance' and 'assurance' may be used interchangeably. Term Insurance covers you in the event of your death if you die within a set period of time, but will not pay out if you die after this agreed period; Whole-of-Life Insurance covers you until death and is therefore certain to pay out eventually: it is thus the most expensive type of life insurance. There is also a further, arguably more complicated form of life insurance, Endowment Insurance, which offers insurance in a savings plan.
The amount of cover, referred to as the 'sum assured', that your family receive if you die is up to you: how much money will your dependents need if you die? This amount is usually paid as a lump sum or as a series of monthly sums, known as Family Income Benefit. For more details see Payout Options. It is a good idea to seek advice when deciding on the correct amount of cover for you: you do not want your family to be left with too little, nor do you want to pay excessive premiums for unnecessary cover (see Life Insurance Cover).
The cost of a life insurance policy (see Cost of Life Insurance) varies based on the type of insurance and the level of cover received as well as your age, sex, state of health, lifestyle and occupation. The terms and conditions surrounding life insurance are variable and you should shop around and get advice from different providers (see Terms, Conditions & Considerations). Ensuring that you know exactly what cover you are receiving will prevent any surprises later on when a claim is made (see also Making a Claim).
