When buying life insurance you should always look for the cover which protects you when you need it. Many insurance companies will try and talk you into combining your life insurance needs with your savings and investments through whole of life cover, and not only can this distract you from ensuring your life insurance cover is everything you need, it can also cost you money that could be best spent elsewhere. Therefore, make sure you purchase term life insurance for life insurance purposes only, and place your investment monies elsewhere.

Features of Term Life Insurance

Term life insurance is solely life insurance, much like the insurance you take out to protect assets such as your house or car, except of course, in this case it is insurance on your life. If you were to die during the term you have chosen to have your life insured, your beneficiaries would receive the sum of money you were insured for. This means your business partner, family or loved ones will have been protected from any financial loss resulting from your passing. If however, you were to survive and lived on past the term of your cover, your policy would lapse and neither you nor your beneficiaries would receive anything. The same thing occurs every year when your house or car insurance comes up for renewal and you wouldn’t expect your insurance company to pay out if your house burned down and you hadn’t renewed your policy.

Term life insurance can be taken out for your choice of terms ranging from one year to 30 years. The cost depends on the amount of cover you require, and your age at the time you take out the cover. Most insurance companies have a structure where a new term of cover can be accessed to carry on from the expiring cover, but the cost will be slightly more as you get older. The extra cost can be countered however, if you agree to a lower amount of cover, just make sure you are still insured for enough to look after your dependants.

This type of insurance is particularly attractive to people who may be getting married, buying a home or starting a family. By buying term life insurance at this stage in your life when you are young you can obtain a high cover amount at a low cost, and this is exactly when you need higher cover, to cover all of your responsibilities. Later in life, when the mortgage in finally paid out, your children have finished their schooling, and your financial responsibilities have diminished significantly, you can take out further term life insurance for a much lower amount of cover. After you retire you may only need an amount sufficient to cover your funeral and any debts you may leave behind. In this way you have had adequate cover your entire life at the lowest possible cost, knowing the whole time that should the worst happen, nobody you would have left behind would have suffered financially as a result.

Term Life Insurance vs Whole of Life Cover

Before the advent of superannuation, whole of life insurance was the more popular insurance choice. Whole of life policies are made up of term life insurance and savings, however, the savings portion has never been competitive with other forms of investment and the same remains true today.

Although it is important that you insure your life in order to protect your loved ones from inheriting your debts, or because you want to give them enough funds so they can continue on with their lives in a financially secure manner, there are many other investment methods which will offer you a better return than whole of life insurance.

Another downfall of a whole of life insurance policy is that the only way you can access the money you have saved in the investment portion of the policy is to cancel the policy, but when you do this your life cover lapses and you are then uninsured.

Your best option is to treat your life insurance needs differently to that of your investment plans. Never mix the two. You will be much better off financially by taking out term life insurance for the amount you need over the period you require, and then investing whatever you can afford in other ways which will return a much better dividend.

Whole of life insurance policies can still be useful, for example if you are marrying late in life, say in your 40s as it is about that time that term life insurance starts to get dearer as the risk of you dying before the term expires becomes greater. Therefore, whole of life insurance can become valuable at this stage, as long as you intend to keep it going for life. You will only truly benefit if you keep your policy because it takes around 20 years for the investment portion of a whole of life policy to show any real gain, and in the meantime you will have received adequate life insurance cover.