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Risk Warnings

Life Insurance


Introduction

Before taking out any kind of insurance you need to understand exactly what will be covered. (For example, when buying life insurance, 'term insurance' only covers you for the specified period you insure for.) You also need to ensure you understand any exceptions to your policy and any penalties payable if your circumstances change or if you are unable to keep up with payments. If necessary, you should always seek independent financial advice.

What it means for you

There are two types of life insurance: investment-type and term insurance. You need to understand the differences between them to see which one is right for your personal circumstances.

Investment-type life insurance pays out if you die and if you do not (with the exception of whole life insurance). Although that makes it sound attractive, you need to be aware that investment-type policies cost a lot more than protection-only insurance.

There are several types of investment-type life insurance: whole of life insurance, with-profits bonds, unit-linked bonds, income and growth bonds, endowment policies, maximum investment plans and other life insurance plans which build up cash-in value.

Term insurance (also known as 'protection only life insurance') pays out if you die within a set period of time (the 'term'). If you survive the term, it pays out nothing. You might set the term at, say, the number of years until your children are financially independent, or the number of years remaining on your mortgage. It does costs less than investment-type life insurance but, as it is not an investment, it does not build up a cash value. 

There are different types of term insurance: lump sum term insurance, family income benefit and pension term insurance.