When you talk about the cost life insurance has on your family you should concentrate your thoughts on the financial position your family would be in if you had worried more about the expense of insurance premiums and had put off taking out life insurance until it finally became too late. Life insurance can be the difference between your family being left destitute, with all the hardships that brings, and carrying on living the same lifestyle as they would as if you were still there to care for them.

What Would it Cost you not to have Life Insurance?

When you think of the alternatives it is hard to cost life insurance as you do other lifestyle products. Sure, you may well see out your life, carry out your ambitions and raise a good family without anything happening, most of us do, but, and it is a very big, but, what happens to your loved ones should you be taken from the scene when your responsibilities were at their greatest? Is it worth the gamble? You wouldn’t dare gamble on your house not burning down nor would you gamble on driving your car down a public road whilst it is not insured. Why then would you gamble on the future of the people you love the most, your family and their dreams of the future? It is then that you realise that the cost life insurance imposes on you, and your family, comes down to something tangible and real.

If you cost life insurance on the amount of premium you pay you must also look at the two basic types of life insurance you have to choose from: term and whole of life. There is a big difference in their costs and this reflects itself in the amount you are able to insure yourself for. Firstly, all life insurance rates are based on two main concepts, interest and mortality. There is a third concept but this is mainly concerned with administrative costs such as paying claims, cost of operating the business and merchandising. The main two concepts that have a real meaning to the insured person are interest and mortality:

• Interest is an amount of money your premium is capable of earning. The company invests part of your premium in a variety of ways such as real estate, mortgages, stocks and bonds. The return they get from these investments goes a long way to reflect the level of premium you have to pay as the longer you pay the premiums means the more the insurance company has to invest and the more interest income they can earn. Similarly the larger the group of policy holders the less the premium.
• Mortality is a word used to describe sharing the risk of dying among a large number of people. Insurance companies employ actuaries to ascertain this risk based on how much money they need to raise to pay the expected number of death claims among their policyholders. They do this by determining the average life expectancy of the various age groups.

Types of Life Insurance

The variables in interest and mortality all means that a lot of the cost life insurance will personally be based on your age. The younger you are the lower will be the premium you will have to pay for a certain level of insurance. This is true for both term insurance and whole of life cover.

Term Life Insurance is a type of life insurance which is the one most like general insurance when you take out insurance to protect yourself against any loss should your house be destroyed, or your car be involved in an accident. Term life insurance keeps your life insured for a certain amount of money over a specific period of time. If you were to die during that period your beneficiaries would receive the money you were insured for. If you outlived the term you were insured for all the premiums you had paid during the term would be forfeited to the insurance company.

Whole of Life Insurance is just as its name implies, as whole of life insurance is meant to last the whole of your life. This means that at some stage the life insurance company has to either pay out the cash value of the policy or the insured amount. You can surrender the policy at any stage and when you do you will received its cash value at that time. If you don’t surrender the policy the insurance company will pay the insured amount to your beneficiaries on your death. To be able to pay out the policy the company has to divide the premium up into two distinct components. One is a life insurance premium as is done with term insurance and the other is an investment component. It is the investment component of your whole of life insurance policy that allows the company to pay out a cash surrender value. This also means you having to pay a much larger premium than you do for the same level of insurance under term insurance.